Larry Gaines, age 42, sells his personal residence on November 12, 2016, for $29

Question

Larry Gaines, age 42, sells his personal residence on November 12, 2016, for $295,600. He lived in the house for 7 years. The expenses of the sale are $20,692, and he has made capital improvements of $8,868. Larry's cost basis in his residence is $171,448. On November 30, 2016, Larry purchases and occupies a new residence at a cost of $369,500 Calculate Larry's realized gain, recognized gain, and the adjusted basis of his new residence If an amount is zero, enter "o" a. Realized gain b. Recognized gain c. Adjusted basis of new residence

Explanation / Answer

(a) Realised gain = Amount received from sale - capital improvements -cost basis =($295600-$20692) -8868-171448=$94592 (b) recognised gain = $0, larry may exclude up to $250,000 from sale of his personal residence in computation of taxable income © Adjusted basis For new residence = Cost of the new Residence =$369500 realized gain $94592 Recognised gain $0 Adjusted basis for ne residence $369500

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