In: Accounting
SALE PRICE OF TOWN HOUSE AS PER ASSESSED VALUE $ 1400000
PURCHASE PRICE OF NEW LAKE FRONT HOME $ 700000
CAPITAL GAIN IN CASE OF SALE OF OLD TOWN HOUSE
SALE PRICE $ 1475000
(-) PURCHASE PRICE $ 700000
NET INCOME $ 775000
CAPITAL GAIN TAX IS CHARGEABLE ON THE BASIS OF THE INCOME SLAB
In the Internal Revenue Code Section 121, which allows a capital gains exclusion of up to $250K ($500K if married filing a joint return) if the income is realized as a result of the taxpayer having sold his/her primary residence – the domicile in which one lives for the majority of the time.
To be eligible for this exclusion, you must have lived in your primary residence for at least a two year period out of the previous five years prior to the sale of your home.
Here as Hen and Leia have lived for 2 years , they are eligible for the exemption of $ 500,000
Therefore, net taxable income = $ 775000-$500000= $ 275000
It will be reported on Form 1099-S and shown on your US tax return.
The capital gains tax rate for which you are liable will depend on your level of income.