Irene Andrews is purchasing the assets of a sole proprietorship from Seth. The fair market values of the assets as agreed to by Irene and Seth are as follows:
|
Asset |
Seth’s Adjusted Basis |
Fair Market Value |
|
Accounts receivable |
$ –0– |
$ 10,000 |
|
Notes receivable |
15,000 |
20,000 |
|
Machinery and equipment |
85,000 |
110,000 |
|
Building |
100,000 |
320,000 |
|
Land |
200,000 |
350,000 |
The purchase price is $950,000.
a. Calculate Seth’s realized and recognized gain.
b. Determine Irene’s basis for each of the assets.
c. Write a letter to Irene informing her of the tax consequences of the purchase. Her address is 300 Riverside Drive, Cincinnati, OH 45207.