Question

Stan sold his investment property for $97,000 and had $8,000 in closing costs. The property had a beginning basis of $77,000, capital improvements of $4,000, and depreciation of $15,000. What was Stan's capital gain?

Answer 1

To find Stan's capital gain, calculate his property's adjusted basis and subtract it from the amount realized from the sale. Stan's capital gain is $23,000 after considering all costs, improvements, and depreciation.

Step-by-step explanation:

To calculate Stan's capital gain from selling his investment property, we need to consider the selling price, associated costs, initial basis, capital improvements, and depreciation. The basis of the property is its purchase price plus any capital improvements, minus any depreciation taken.

• Start with the initial basis: $77,000
• Add capital improvements: $77,000 + $4,000 = $81,000
• Subtract depreciation: $81,000 - $15,000 = $66,000 (adjusted basis)
• Subtract closing costs from the selling price: $97,000 - $8,000 = $89,000 (amount realized)
• Calculate capital gain: $89,000 - $66,000 = $23,000

Stan's capital gain is $23,000.