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In: Accounting

Nell, Nina, and Nora Sanders, who are sisters, sell their principal residence (owned as tenants in...

Nell, Nina, and Nora Sanders, who are sisters, sell their principal residence (owned as tenants in common) in which they have lived for the past 25 years. The youngest of the sisters is age 60. The selling price is $960,000, selling expenses and legal fees are $63,000, and the adjusted basis is $120,000 (the fair market value of the residence when inherited from their parents 25 years ago; they made no capital inprovements during the time they held the residence). Because the sisters are going to live in rental housing, they do not paln to acquire another residence. Nell has contacted you on behalf of the three sisters regarding the tax consequences of the sale.

a. Write a letter to Nell advising her of the tax consequences and how taces can be minimized. Nell's address is 100 Oak Avenue, Billings MT 59101.

b. Prepare a memo for the tax files.

Solutions

Expert Solution

October 20, 2011

Ms. Nell Sanders

100 Oak Avenue Billings,

Montana 59101

Dear Nell,

I am responding to your inquiry regarding the tax consequences of the sale of the residence. Since each of you has owned and lived in the house for at least 2 of the past 5 years, each of you qualify for the § 121 exclusion. According to our conversation, no replacement residence will be acquired. If this should occur, the adjusted basis for the new residence will be its cost. In any event, each of you will make the following calculation associated with your Federal income tax return: Amount realized ($320,000 sales price – $21,000 selling expenses and legal fees) $299,000 Adjusted basis (40,000) Realized gain $259,000 § 121 exclusion (250,000) Recognized gain $ 9,000 As noted above, each of you qualifies for a maximum exclusion of realized gain of $250,000.

B. TAX FILE MEMORANDUM DATE:

October 20, 2011

FROM: NELL

FACTS: Nell Sanders Sale of Residence Nell Sanders contacted us on behalf of herself and her sisters Nina and Nora. They recently sold the house which they inherited from their parents 20 years ago and have lived in for the past 25 years. At the time the house was inherited, it had a fair market value of $120,000.Each sister had an equal amount of share in it. they sale the property $960000 and $ 63000 regarding selling expense and legal expense.

ekkarill92 answered 1 year ago
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