Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land.Patrice's basis in the land is $40,000.What is the gain or loss she will recognize on the sale?

Question

Quizplus · Accepted Answer

To calculate the gain or loss recognized on the sale, we need to first calculate the amount realized, which is the cash received plus the assumed liability:
Amount realized = $50,000 + $7,000 = $57,000

Next, we need to calculate the adjusted basis, which is the original basis plus any improvements or adjustments made to the property, minus any depreciation taken:
Adjusted basis = $40,000

Finally, we can calculate the gain or loss recognized by subtracting the adjusted basis from the amount realized:
Gain or loss = Amount realized - Adjusted basis
Gain or loss = $57,000 - $40,000
Gain or loss = $17,000

Since the amount realized is higher than the adjusted basis, Patrice will recognize a gain of $17,000 on the sale (option D).

Patrice Sells a Parcel of Land for $50,000 Cash and the Buyer