Reference no: EM132011453

Question - H owns a small office building and commercial complex, which he purchased for $175,000 in 2009. H invested $20,000 and signed a nonrecourse note secured by an interest in the property for the difference. The note provided for 9% interest, compounded annually and payable quarterly. After six years, H decided his property was not as good an investment as he had originally thought. He found a buyer who offered him $1,000 cash for the property, subject to the existing liabilities. H eventually accepted the offer and sold the property. During the six years he owned the property, H made timely interest payments and no payments of principal. He was allowed depreciation deductions of $34,000, using the straight-line method of depreciation and a 39-year recovery period.

1. How much is H's gain or loss realized on this sale?

2. Would your answer differ if H's building was only worth $150,000 and instead of selling the building he had voluntarily transferred it to the obligee on the note?