Understanding Luke's Recognized Gain on the Sale of a Building

What is the amount and character of Luke’s recognized gain or loss on the building?

Based on the data provided, what is Luke's recognized gain or loss on the building he sold to his wholly owned corporation?

Answer:

Luke's recognized gain on the building is $122,500, and it is characterized as a long-term capital gain.

The question asks about Luke's recognized gain or loss on the sale of a building to his wholly owned corporation, Studemont Corporation, at fair market value. The fair market value of the building was determined to be $332,500, while Luke built the building several years ago at a cost of $275,000 and claimed $65,000 of depreciation on the building.

After claiming depreciation, Luke's adjusted basis in the building is $210,000 ($275,000 - $65,000). When he sells the building for $332,500, his recognized gain is calculated by subtracting the adjusted basis from the sale price, resulting in a recognized gain of $122,500 ($332,500 - $210,000).

This recognized gain is characterized as a long-term capital gain since the building has been held for more than one year. The calculation method for recognizing the gain is crucial in determining Luke's tax implications and financial standing after the sale.