Question

Linda, who is self-employed, purchased a house in 2010 for $220,000 and uses 15% of the house as an office. The office is used on a regular and exclusive basis and is her principal place of business. Depreciation of $4,000 has been deducted when she sells the house for $400,000. Which of the following statements is not true with regard to these facts?

1. If the office is in a separate structure the gain recognized is $31,000.

2. If the office is not in a separate structure the gain recognized is $4,000.

3. The total gain realized is $184,000 regardless of whether or not the office is in a separate structure.

4. None of the answers provided is correct.

5. The total gain recognized is $4,000 regardless of whether or not the office is in a separate structure.

Answer 1

With regards to the facts, statements which are Not true and can be treated as false statements are as under

• If the office is in a separate structure the gain recognized is $31,000.
• If the office is not in a separate structure the gain recognized is $4,000.
• ​​​​​​None of the answers provided is correct.
• The total gain recognized is $4,000 regardless of whether or not the office is in a separate structure.

Only one statement is true that is The total gain realized is $184,000 regardless of whether or not the office is in a separate structure.

As the house was purchased for $220000 and after depreciation of $4000 it would appear $ 220000- $4000= $ 216000 in the books and selling price of house is $400000 than it shows gain of $400000- $216000= $184000

In whole case it doesn't matter that the property is used for any purpose as the house will remain and treated as a hous eonly