Ms. SE paid $155,000 for a house that she occupied as her principal residence until February 1, when she moved out and converted the house to rental property. The appraised FMV of the house was $140,000. She leased the house to tenants who purchased it on November 18. Her realized loss on the sale was $24,700, computed as follows:

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Amount realized Original cost basis MACRS depreciation during rental period Adjusted basis 5 125,000 5155,000 (5,300) (149.700) S (24,700)