Question

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

a. $0.
b. $38,000.
c. $70,000.
d. $110,000.
e. None of the above.

Answer 1

b. $38,000

Step-by-step explanation:

The gain on the sale of the house is for $38,000 because:

Cost of the house: $450,000

Cost of adding a room: $40,000

Total cost: $490,000

Sale value: $560.000

Comissions and fees $32,000

To get the gain or loss, you have to take the sale value and subtract the comissions and fees and the total cost Yolanda had:

$560,000-$32,000-490,000= 38,000