Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp., at fair market value. The fair market value of the building was determined to be $472,500; Luke built the building several years ago at a cost of $437,500. Luke had claimed $91,500 of depreciation expense on the building. The fair market value of the land was determined to be $221,000 at the time of the sale; Luke purchased the land many years ago for $177,000. Luke's brother will use the building in his business. Required:
a. What is the amount and character of Luke's recognized gain or loss on the building?
b. What is the amount and character of Luke's recognized gain or loss on the land?

A. $126,500

B. $44,000

Explanation:

A. Calculation for What is the amount and character of Luke's recognized gain or loss on the building

First step is to calculate the Adjusted basis

Adjusted basis=$437,500-$91,500

Adjusted basis=$346,000

Now let calculate the Ordinary Gain / (Loss) recognized

Ordinary Gain / (Loss) recognized=$472,500-$346,000

Ordinary Gain / (Loss) recognized=$126,500

Therefore the amount and character of Luke's recognized gain or loss on the building will be $126,500

B . Calculation for What is the amount and character of Luke's recognized gain or loss on the land

Fair market value $221,000

Less Cost of land $177,000

Gain on sale of land ($44,000)

($221,000-$177,000)

Therefore the amount and character of Luke's recognized gain or loss on the land will be $44,000