Question

Jamie bought her house in 2008 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. She sells the house on July 1, 2014. 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, assumes her mortgage of $194,000, and pays property taxes of $4,200 for the entire year on December 1, 2014. What is Jamie's adjusted basis at the date of the sale and the amount realized?

Answer 1

Answer:

$370,000; $661,100

Explanation:

Adjusted basis = Cost  - Depreciation + Capital Additions

                         = $395,000 - $70,000 + $45,000

                         = $370,000

Amount realized:

= Cash received + Mortgage assumed By Sammy - Commission to to realtor -Advertising + Property tax paid by Sammy($4200 × 6/12)

= $500,000 + $194,000 - $34,700 - $300 + $2100

=  $661,100

Therefore, Jamie's adjusted basis at the date of the sale is $370,000 and the amount realized is $661,100.