c. basis for the lot she continues to own? Sale of a Principal Residence. Marc,
ID: 2577755 • Letter: C
Question
c. basis for the lot she continues to own? Sale of a Principal Residence. Marc, age 45, sells his personal residence on May 15, 2017, for $180,000. He pays $8,000 in selling expenses and $900 in repair expenses to help sell the residence. He has lived in the residence since 1992, when he purchased it for $55,000. In 1999, he paid $6,000 to install central air conditioning. If Mare purchases a new prin- cipal residence in December of the current year for $162,000, what is the realized gain, recognized gain, and the basis for the new residence? 43Explanation / Answer
Basis
Each house is a separate transaction. The rule about rolling over the gain from the first house ended back in May 1997. cost basis is the purchase price plus improvements if any so in the present case basis for the new house is $162,000.
Recognized Gain
The IRS considers a recognized gain a profit earned from the sale of an asset. A recognized gain only considers the difference between the basis of the asset and the sale price. The IRS allows you to make a tax-free profit of $250,000 on a primary residence, or $500,000 if you are married and file jointly. So in the present case Since Realized gain is $116,100 which is <250,000 So recognized gain is ZERO.
Realized Gain
Realized gains refer to the amount of money you actually earned in the sale of an asset. When calculating your realized gain, you must deduct any costs associated with the sale. So in the present case realized gain is $116,100 which is calculated as follows.
Sales Price
1,80,000
Purchase Cost
55,000
Selling Expenses
8,000
Repair
900
Install A/C
-
63,900
Will be taxed separately based on FMV
Realized Gain
1,16,100
Purchase price of new house
1,62,000
Sales Price
1,80,000
Purchase Cost
55,000
Selling Expenses
8,000
Repair
900
Install A/C
-
63,900
Will be taxed separately based on FMV
Realized Gain
1,16,100
Purchase price of new house
1,62,000
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