In 1996, Mr. and Mrs. Sellers purchased their first principal residence for $100
ID: 2420408 • Letter: I
Question
In 1996, Mr. and Mrs. Sellers purchased their first principal residence for $100,000. In 2000, the spent $50,000 to add a room to the house. In 2010, the entire residence was painted at a cost of $8,000. They have spent about $25,000 in routine maintenance and repairs since acquiring the home.
Determine the following:
1. Calculate the basis of the property
2. Calculate the amount of recognized gain or loss if the home was sold today for $900,000.
3. Calculate the amount of recognized gain or loss if the home was sold today for $500,000.
4. Calculate the amount of recognized gain or loss if the home was sold today for $100,000.
5. Explain the tax considerations that Mr. and Mrs. Sellers must consider if they decided to convert the residence in to a rental property.
Explanation / Answer
Basis of the property
Purchase price $100,000
Add:Addittion 50,000
Basis $150,000
The cost of painting and maintenance are not considered capital improvements
2)Sale price $900,000
less:Adjusted basis 150,000
Capital gain 750,000
3) Sale price $500,000
less:Adjusted basis 150,000
Capital gain $350,000
4)Sale price $100,000
less:Adjusted basis $150,000
Captial loss (50,000)
Basis of the property
Purchase price $100,000
Add:Addittion 50,000
Basis $150,000
The cost of painting and maintenance are not considered capital improvements
2)Sale price $900,000
less:Adjusted basis 150,000
Capital gain 750,000
3) Sale price $500,000
less:Adjusted basis 150,000
Capital gain $350,000
4)Sale price $100,000
less:Adjusted basis $150,000
Captial loss (50,000)
5)they need to pay taxes on rental income as wellRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.