Karl purchased his residence on January 2, 2014, for $260,000, after having live

Question

Karl purchased his residence on January 2, 2014, for $260,000, after having lived in it during 2013 as a tenant under a lease with an option to buy clause. On August 1, 2015, Karl sells the residence for $315,000. On June 13, 2015, Karl purchases a new residence for $367,000.
a. What is Karl’s recognized gain? His basis for the new residence?

b. Assume instead that Karl purchased his original residence on January 2, 2013 (rather than January 2, 2014). What is Karl’s recognized gain? His basis for the new residence?

c. In (a), what could Karl do to minimize his recognized gain?

Explanation / Answer

a. What is Karl’s recognized gain? His basis for the new residence?

Answer:

Karl’s recognized gain = $315000 - $250000 = $65000

His new basis = $367,000

b. Assume instead that Karl purchased his original residence on January 2, 2013 (rather than January 2, 2014). What is Karl’s recognized gain? His basis for the new residence?

Answer:

Then recognized gain would be = $260000 - $250000 = $10000

a.   In (a), what could Karl do to minimize his recognized gain?

Answer: To minimize gain Carl can increase his basis and minimize tax.

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.