Question

Required information Problem 3-52 (LO 3-5) [The following information applies to the questions displayed below.] Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, DC. She doesn't sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a place somewhere sunny and warm. Tonya's townhouse is worth $1,000,000 and the land is worth another $1,000,000. The original basis in the townhouse was $600,000, and she has claimed $250,000 of depreciation deductions against the asset over the years. The original basis in the land was $500,000. Tonya has located a buyer that would like to finalize the transaction in December of the current year. Tonya's marginal ordinary income tax rate is 35 percent and her capital gains tax rate is 20 percent. Problem 3-52 Part-a Required: a1. What amount of gain or loss does Tonya recognize on the sale? a2. What is the character of the gain or loss? a3. What effect does the gain or loss have on her tax liability or (tax savings)? Complete this question by entering your answers in the tabs below. Req al Req a2 Req a3 What amount of gain or loss does Tonya recognize on the sale? Gain $ 500,000 Regal Req a2 >

Please answer Req a1

Answer 1

The gain or loss to be recognized is,

On building , 10,00,000 - (6,00,000 - 2,50,000) = 650,000

On land , 1,000,000 - 500,000 = 500,000

In total it is 1,150,000