Question

None of these choices are correct.

Amount realized ($490,000 - $34,000) $456,000 Adjusted basis (95,000) Realized gain $361,000 § 121 exclusion (250,000) Recognized gain $111,000 The adjusted basis of the inherited residence is the fair market value at the date of the decedent's death, $345,000, increased by the capital expenditures of $85,000 for a total of $430,000.

Samantha inherits a home on July 1, 2017, that had a basis in the hands of the decedent at death of $180,000 and a fair market value of $345,000 at the date of the decedent's death. She decides to sell her old principal residence, which she has owned and occupied for nine years, with an adjusted basis of $95,000 and move into the inherited home. On September 16, 2017, she sells the old residence for $490,000. Samantha incurs selling expenses and legal fees of $34,000. She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $85,000. These additions are completed and paid for on November 1, 2017. What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?
a. $111,000; $265,000.
b. $0; $180,000.
c. $361,000; $430,000.
d. $361,000; $265,000.
e. None of these choices are correct.

Answer 1

Samantha's recognized gain on the sale of her old residence is $111,000 after the § 121 exclusion, and her basis in the inherited home is $430,000 after capital expenditures for improvements.

Step-by-step explanation:

To calculate Samantha's recognized gain on the sale of her old principal residence, you deduct the selling expenses and the adjusted basis from the amount realized. The amount realized from the sale is $490,000, and the selling expenses and legal fees are $34,000, which gives us an adjusted sales price of $456,000. Subtracting her original adjusted basis of $95,000 results in a realized gain of $361,000. Since Samantha has owned and lived in the property for more than two years, she can exclude up to $250,000 of the gain from taxation under § 121 exclusion. This leaves her with a recognized gain of $111,000.

The basis in the inherited home is equal to the fair market value at the date of the decedent's death, which is $345,000, plus the capital expenditures of $85,000 for the improvements. Therefore, her basis in the inherited home is $430,000.