Harley Krane purchased a side-by-side duplex in 20X0 for $120,000 (land $20,000, building $100,000). The units were designed and previously used for residential use but Krane used them for his business.
Both units were used to conduct his law practice; one unit housed a small group of paralegals in his employ, who processed most of the real estate transactions for his clients.
In 20X2, Krane stopped practising real estate law in order to concentrate on family law and terminated the staff positions of all paralegals. Krane then occupied the freed-up duplex unit as his personal residence, which meant he no longer had to commute.
At the end of 20X1, the duplex building had an undepreciated capital cost of $94,000. Recently, a duplex of similar size across the street was sold for $150,000.
Required:
How will Krane’s net income for tax purposes for 20X2 be affected by the above activity?