Huey sold a warehouse with an original cost of $150,000 for $230,000 to an S corp where he owns a 51% interest. The S corp 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

$2,700

Explanation:

First, we need to determine the value of the warehouse at sale.

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

= $110,000

The gain or loss = Selling price - Current value

= $230,000 - $110,000

= $120,000.

We will also determine the partnership interest amount, which is;

= 51% × $230,000

= $117,300

This means that the interest value of $117,300 will be used to buy off the warehouse.

Hence, Huey's gain and taxable gain will be;

= $120,000 - $117,300

= $2,700

the third answer is correct.