Question

Sale of a Principal Residence (LO. 9)

Aretha sells her house on June 9, 2020, for $235,700 and pays commissions of $9,500 on the sale. She had purchased the house for $61,800 and made capital improvements costing $15,400.

Determine Aretha's realized and recognized gains in each of the following cases.

If an amount is zero, enter "O". Round any division to three decimal places.

Realized Gain

Recognized Gain

a. Aretha is single and acquired the house on September 15, 2012.

b. Assume the same facts as in part a, except that Aretha sells the house for

$388,500 and pays commissions of $29,800 on the sale.

C. Aretha is single and acquired the house on September 1, 2019. She sells the houses because her company transfers her to Phoenix

d. Assume the same facts as in part c, except that Aretha moves to Phoenix to enter medical school.

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Answer 1

The answer provided below has been developed in a clear step by step manner.

[a] Calculate the amount of Realized Gain as shown below: Realized Gain or loss = Realized Amount - Adjusted Basis = ($235,700 - $9,500) - ($61,800+ $15,400) = $226,200 - $77,200 = $149,000 Calculate the amount of Recognized Gain In this case, A meets both ownership and the use test. As A owned and used more than two years. So, A can exclude the entire gain. Recognized Gain = Realized Gain - Exclusion Amount = $149,000 - $149,000 = $0 Hence, the Realized Gain is $149,000 and Recognized Gain is $0

[b] Calculate the amount of Realized Gain Realized Gain or loss = Realized Amount - Adjusted Basis ($388,500-$29,800) - ($61,800+ $15,400) $358,700 - $77,200 $281,500 Exclusion limit of gain on sale of personal residence: "The exclusion limit is $500,000 for married tax payers filing jointly and $250,000 for other tax payers". "If the tax payer qualified both ownership test and use test for the personal residence". Recognized Gain Realized Gain - Exclusion Amount $281,500 $250,000 $31,500

c Calculate the amount of Realized Gain Realized Gain or loss Realized Amount - Adjusted Basis ($235,700 - $9,500) - ($61,800+ $15,400) $226,200 $77,200 = $149,000 In this case, A does not meet ownership test and use test. A is qualified for the exclusion. Exclusion Amount 9months <$250,000 12months = $93,750 Recognized Gain = Realized Gain - Exclusion Amount = $149,000 - $93,750 = $55,250 Hence, the Realized Gain is $149,000 and Recognized Gain is $55,250

[d] Calculate the amount of Realized Gain Realized Gain or loss - Realized Amount - Adjusted Basis = ($235,700 - $9,500) - ($61,800 + $15,400) = $226,200 - $77,200 = $149,000 Hence, the Realized Gain is $149,000 Calculate Recognized Gain Recognized Gain = Realized Gain - Exclusion Amount = $149,000 - $0 Note: = $149,000

In the present scenario, "A does not meet ownership test and use test. Hence, A is not qualified for the exclusion".

Ans:

In the present scenario, "A does not meet ownership test and use test. Hence, A is not qualified for the exclusion".