Question

Dexter owns a large tract of land and subdivides it for sale. Assume that Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers for $140,200 each. Dexter's basis in each lot sold is $98,140, and he incurs total selling expenses of $5,608 on each sale.

If required, round your answers to the nearest dollar.

Dexter has a realized and recognized gain of $_______?, of which $_______? is classified as ordinary income and $_______? as a capital gain.

Answer 1

ANSWER:

PARTICULARS	AMOUNT ($)
Selling price ($140200 x 8) Less: selling expenses ($5608 x 8)	1121600 44864
Amount realised Basis ($98140 x 8)	1076736 785120
Realised and recognised gain	291616
Classification of recognised gain
Ordinary income = (5% of selling price) = (5% x $1121600) Less: selling price	56080 44864
ORDINARY GAIN	11216
CAPITAL GAIN (291616 - 11216)	280400

Therefore,

Realised and recognised gain = $291616

Ordinary income = $56080

Ordinary gain = $11216

Capital gain = $280400