Question

Jamie bought her house in 2009 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. In addition, she’s also spent $12,600 in general maintenance and repairs over the last six years.

She sells the house on July 1, 2019. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Sammy buys the house for $500,000 in cash, and assumes (takes over) her mortgage of $194,000 on December 1, 2019. What is Jamie’s adjusted basis at the date of the sale and the amount realized? Show all of your work

Answer 1

Solution:

Computation of adjusted basis:

Cost	$395,000
Depreciation	$-70,000
Capital additions	$45,000
Adjusted basis	$370,000

Note: Adjusted basis = Cost + Capital additions - Depreciation

Computation of Amount realized:

Sales proceeds	$500,000
Mortage assumed	$194,000
Realtor's commission	$-34,700
Advertising expense	$-300
General maintenance and repairs	$-12,600
Amount realized	$646,400

Note: Amount realized = Sales proceeds + Mortgage assumed - Commission - Advertising expense - General maintenance expense