Question 34 of 40.

Jorge purchased a home with a detached garage. In January 2015, Jorge converted the garage to use for his business building bird houses. He determined the value of the garage was $12,000, excluding the land. He sold the garage in December 2019 to a neighbor for $11,000. He is surprised that, even though he sold it at a loss, his return would show a gain. What is the best explanation for why Jorge had a gain?

There is a mistake on Jorge's return.

Jorge had a gain because the sales price was more than the basis adjusted for depreciation allowed or allowable.

Jorge had a gain because he owned the property a long time.

Jorge had a gain because this property was converted from personal use.