Question

Michael and Mary Mason sold for $520,000.00 in March of 2019 their residence that they had purchased in 2014 for $75,000.00. They had made capital improvements during their 10-year ownership totaling $25,000.00. They moved into a smaller house that cost $220,000.00.

A). What is their recognized gain should they elect to use Section 121? _______ _____

B). What is their recognized gain should they elect to use Section 121 if they sold the house for $720,000.00?

C). Assume instead that the Masons resided in a very depressed neighborhood and the home was sold for only $60,000.00.

D). How much, if any, gain or loss is recognized? _____________

there's no D

Answer 1

Answer

Given

Purchase cost = $75,000

Capital = $25,000

Sales price = $520,000

Recognized capital gain = Sales price - (purchase cost of resindence + capital improvement) - Capital exclusions under sec 121

[The rule 121 applies to masons and recognized capital gains will be]

The manson are married and filling jointly and are allowed maximum $500,000 capital gain exclusion

Recognized capital gain

= 520,000 - (75000 + 25000) - $500,000

= 520,000 - 100,000 - $500,000

= ($80,000)

There will be no recognized capital gain

(b). Following assumption taken

Purchase cost = $75,000

Capital improvement = $25,000

Sales pric e= $720,000

Recognized capital gain

= $720,000 - (75000 + 25000) - 500,000

= $720,000 - 100,000 - $500,000

= $120,000

(c) As per 6 U.S code 1212 - Capital loss carry backs and carryovers.Losses from the sale of personal property including a residenc, do not qualify for capital losses

Hence Mansons can not claim losses as their sale price of residence is less than purchase cost.