Question

Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2013, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on August 16, 2013, he and the purchaser signed a contract to sell for $363,000. The sale took place on September 7, 2013. The closing statement showed the following disbursements:
Real estate agent's commission $21,780
Appraisal fee 600
Exterminator's certificate 300
Recording fees 800
Mortgage to First Bank 305,000
Cash to seller 34,520
Wesley's adjusted basis for the house is $200,000. He owned and occupied the house for seven years. On October 1, 2013, Wesley purchases another residence for $325,000. If an amount is zero, enter "0".
a. Wesley's recognized gain on the sale is $ 0
b. Wesley's adjusted basis for the new residence is $ 270000
c. Assume instead that the selling price is $800,000.Wesley's recognized gain is $287750 , and his adjusted basis for the new residence is $
270000

Answer 1

Answer:

a. Wesley's gain = $139,520, but due to section 121 exclusion, he doesn't need to recognize any gain at all.

b. Basis for the new residence is equal to its price = $325,000

c. if the sales price was $800,000, then the gain would = $576,520

section 121 exclusion = $250,000

recognized gain = $326,520

adjusted basis = $325,000