Question

Frank owns an apartment building that he rents to students. Frank originally purchased the building for $900,000 and took straight-line depreciation deductions totaling $400,000. Frank sells the building for $1,000,000 cash and the buyer assumes his mortgage on the building. The mortgage had an original balance of $700,000 and was $425,000 at the time of sale. What is the amount realized , gain or loss realized and gain or loss recognized?

Answer 1

Amount Realized = $1000,000 + $425,000 = $1425,000 (Mortage amount at the time of sale and cash amount)

Gain realized = $1425,000 - $900,000 = $525,000 (Difference of amount realized and purchase price)

Gain recognized = $1425,000 - (900000 - 400000) = $925000 (Purchase price less depreciation will be value as per books.and for recognition of gain we have deducted it from amount realized.

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