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11 August, 19:15

Huey sold a warehouse with an original cost of $150,000 for $230,000 to a partnership where he owns a 51% partnership interest. The partnership will use the warehouse in the business. The warehouse had accumulated depreciation of $40,000. Assuming no other asset sales during the year, how will the gain be taxed to Huey?

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  1. 11 August, 20:41
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    The taxable gain=$2,700

    Explanation:

    Step 1: Determine the value of the warehouse at sale

    C. V=O. V-D

    where;

    C. V=current value

    O. V=original value

    D=accumulated depreciation

    In our case;

    C. V=unknown

    O. V=$150,000

    D=$40,000

    replacing;

    Current value=150,000-40,000=$110,000

    Step 2: Determine gain/loss from the sale

    gain/loss=Selling price-current value

    where;

    selling price=$230,000

    current value=$110,000

    replacing;

    gain/loss=230,000-110,000=$120,000

    Step 3: Determine the partnership interest amount

    partnership interest amount=51% of 230,000 = (51/100) * 230,000=$117,300

    Meaning $117,300 of his interest will be used to purchase the warehouse

    Step 4: Huey's Gains

    Net gains=120,000-117,300=$2,700

    The taxable gain=$2,700
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