Ian and Mia married in early 2017 and purchased a new home together. Each owned

Question

Ian and Mia married in early 2017 and purchased a new home together. Each owned and lived in separate residences prior to the marriage. Ian purchased his residence 5 years ago for $190,000 and he added a master bedroom and bathroom addition at a cost of $40,000. Mia purchased her home three years ago for $135,000. In late 2017, Ian sold his residence for $510,000 and paid a sales commission of $8,000. After paying off his $80,000 mortgage balance, he received the remaining cash proceeds of $422,000. In late 2017 Mia sold her residence for $190,000 and paid a sales commission of $2,000. She had paid off her mortgage so she received $188,000 cash from the sale. If Ian and Mia file a joint tax return for 2017, how much gain do they recognize on their 2017 joint tax return from the sales of their previous homes? a. $0 b. $22,000 c. $53,000 d. $83,000

Explanation / Answer

Net Gains realized through home sale by Ian =$422,000 - (190,000 + 40,000) =$192,000

Net Gains realized through home sale by Mia =$188,000 - 135,000 =$53,000

The following rules hold true in this case:

>> Married and filing jointly

>> They meet the ownership criteria

>> Either spouse meets the 2-Year use criteria

Hence, they are eligible for $250,000 capital gains exemption on each individual sale. Since, the capital gain realized in each case is less than this limit, hence the tax payable is Zero. Hence, option-(a) is correct.

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