Lloyd owns a beach house (four years) and a cabin in the mountains (six years).
ID: 2489201 • Letter: L
Question
Lloyd owns a beach house (four years) and a cabin in the mountains (six years). His adjusted basis is $300,000 in the beach house and $315,000 in the mountain cabin. Lloyd also rents a townhouse in the city where he is employed. During the year, he occupies each of the three residences as follows: Decision Making Townhouse - 135 days Beach House - 155 days Mountain Cabin - 75 days The beach house is close enough to the city so that he can commute to work dur- ing the spring and summer. While this level of occupancy may vary slightly from year to year, it is representative during the time period that Lloyd has owned the two residences. As Lloyd plans on retiring in several years, he sells both the beach house and the maintain cabin. The mountain cabin is sold on March 3, 2015, for $540,000 (related selling expenses of $35,000). The beach house is sold on December 10, 2015, for $700,000 (related selling expenses of $42,000). Calculate Lloyd’s lowest recognized gain on the sale of the two residences. Assume instead that both residences satisfy the two-year ownership and use tests as Lloyd’s principal residence. Because the mountain cabin is sold first, is it possible for Lloyd to apply the § 121 exclusion to the sale of the beach house? Why or why not?
Explanation / Answer
Answer: Lloyd’s principal residence is the beach house. This is the residence in which he lives most of the time. His recognized gain on the sale of each residence is calculated as follows:
Answer: Lloyd can elect to forgo the use of the § 121 exclusion on the sale of the mountaincabin. Then the § 121 exclusion can be used on the sale of the beach house.
Particulars Beach House Mountain Cabin Amount realized Selling price 700000 540000 Selling expenses 42000 35000 658000 505000 Adjusted basis 300000 315000 Realized gain 358000 190000 § 121 exclusion 250000 0 Recognized gain 108000 190000Related Questions
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