Answer:
Explanation:
Capital gains tax is a tax that is levied on the profit made from the sale of a non-inventory asset. The most common sources of capital gains are through the sale of bonds, precious metals, stocks, property, and real estate.
The IRS typically allows an exclusion of up to: $250,000 of capital gains on real estate for a single person and $500,000 of capital gains on real estate for a married couple who are filing jointly.
To find the amount on which they pay capital gains:
The adjusted basis is $200,000 which is:
Initial cost of buying the house for $150,000, plus cost of improvements $50,000.
The sales price of $450,000 minus the selling expenses which cost $30,000.
The amount realized is therefore:
$450,000 - $30,000 = $420,000.
Note: They will receive an exclusion of $500,000 because they are filing jointly. So Bill and Brenda will not pay any capital gains tax.
