1. Ted, a sole proprietor, sold his office building to Sam. Ted had originally purchased the building for $340,000. As of the date of the sale, Ted had recorded $140,000 of accumulated depreciation. Sam paid Ted $190,000 cash for the building. In addition, Ted still owes $50,000 on debt incurred to purchase the building, and Sam assumes this liability. Ted also paid a $5,000 commission to his realtor for facilitating the sale. What is Ted's recognized gain or loss on the sale to Sam?

Ted's recognized gain on the sale to Sam is $40,000, recognized gain/loss represents the taxable gain or loss that Ted will report on his tax return.

Ted's recognized gain or loss on the sale to Sam can be calculated by subtracting his adjusted basis from the amount realized. The adjusted basis is the original cost minus accumulated depreciation.
To find the adjusted basis: Adjusted basis = Original cost - Accumulated depreciation
= $340,000 - $140,000
= $200,000

Next, we calculate the amount realized by adding the cash received to the debt assumed: Amount realized = Cash received + Debt assumed
= $190,000 + $50,000
= $240,000

Now we can calculate the recognized gain or loss: Recognized gain/loss = Amount realized - Adjusted basis
= $240,000 - $200,000
= $40,000
Ted's recognized gain on the sale to Sam is $40,000.

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