Question

Homeowners originally purchased a new home for $225,000. During the period of ownership, the homeowners spent $27,500 in capital improvements. When the homeowners sold the home 15 years later for $359,900, they paid a brokerage fee of 5% of the sale price and paid out-of-pocket closing costs totaling $2,550. What is the homeowners' capital gain from the sale?

Answer 1

Answer:

The answer is: $339,355

Explanation:

We first find the broker's commission: $359,900 sale price × .05 = $17,995

Then we calculate the amount realized from sale: $359,900 (sale price) - $17,995 (broker's commission) - $2,550 (closing costs) = $339,355

The adjusted basis for this house is: $225,000 (purchase price) + $27,500 (capital improvements) = $252,500  

Finally we can now determine the capital gain: $339,355 - $252,500 = $86,855