A taxpayer paid $500,000 for a small industrial property (80 percent of the value is properly attributable to the building, the balance to the land) and incurred transaction costs that equaled five percent of the purchase price.

During her 18th month of ownership, she sold the property for $550,000 and paid transaction costs equal to eight percent of the sales price.

Compute the gain or loss on the sale.

Purchase price                                        $ 500,000

Add: Transactions cost (@ 5 percent)         25,000

Initial tax basis                                        $ 525,000

Times: Portion attributable to improvements    .80

Amount of initial tax basis to be recovered $ 420,000

Monthly cost recovery allowance [$420,000/(12 ´ 39)]   $ 897.44

Times: Number of months allowance claimed (incorporating half month convention)   

Cumulative cost recovery allowance (rounded $ 15,256.41

Sales Price                                                            $ 550,000

Less: Adjusted tax basis:

Initial basis                                                            $ 525,000

Add: Transaction costs on sale                                   44,000

                         $ 569,000

Less: Cumulative cost recovery allowances               15,256         

Adjusted tax basis                                                  $553,744

Loss                                                                            $ 3,744