Henry, a long-time client of yours, recently sold a few assets from his business

Question

Henry, a long-time client of yours, recently sold a few assets from his business. He brings the following information to you hoping you can help him make heads or tails of it:

-He sold an office building that he owned and used in his business. He purchased it 15 years ago for $800,000. Since then, he has added major improvements to the building, totaling $15,789.

-The depreciation taken on the building and the improvements through the date of the sale is $400,000.

-He sold the building for $978,000.

how do I determine gain or loss on the sale and how it will be taxed or deducted.

Explanation / Answer

Purchase price = 800000

Add: major improvement cost= 15789

Total cost of purchase of building and improvement = 800000+15789

Less: Depreciation = 400000

Book value of the building = 800000+15789-400000=415789

Sale value of the building = 978000

gain on sale of building = 978000-415789 = 562211

Gain on sale of building is taxed generally but if this amount is invested agin within stipulated period then allowed as deduction.

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