Question

In: Accounting

Use the following data to determine the sales price of Etta’s principal residence and the realized...

Use the following data to determine the sales price of Etta’s principal residence and the realized gain. She is not married. The sale of the old residence qualifies for the § 121 exclusion.

Selling expenses $45,000

Recognized gain $180,000

Cost of new residence $760,000

Adjusted basis of old residence $225,000

121 exclusion $250,000

Expert Solution

Etta’s principal residence

Sale Price

We can calculate the sale price as follows.-

Recognised Gain = Sale Price - Adjusted Basis of Principal Residence

180000 = Sale Price - 225000

Sale Price = $405000

*Recognised gain is the difference between the sale price of the asset and the adjusted basis of the asset.

Realized Gain = Sale Price - Selling Expenses - Adjusted basis of old residence

Realized Gain = 405000 - 45000 - 225000

Realized Gain = $135000

So realized gain on sale of principal residence is arrived at $135000

But as question describes that etta is eligible for 121 deduction of $ 250000 as she is single than we have to calculate realized gain after 121 deduction that will be $135000 - $250000 = (-) $115000. So finally etta has no capital gain from selling this assets and does not required to report it to IRS.

Etta has also purchased a new house but he cannot use 1031 exchange for principal residence.

* To be qualified for 121 duduction the asset must be retained by taxpayer for more than two years and he cannot have claim in previous two years of it.

So Etta has no capital gain from this transaction.

ekkarill92 answered 1 year ago

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