Question

Stewart, age 44, sells his personal residence of four years on June 14, current tax year for $185,000. The expenses of sale are $15,000 and he has paid for capital improvements of $3,000. Stewart's basis in the residence is $100,000. On February 2, the following year, Stewart purchases and occupies a new residence at a cost of $200,000. Calculate the gain realized on the sale of Stewart's residence.

Answer 1

The realized gain on the sale of Stewart's residence is $67,000, calculated by subtracting the expenses of sale and the adjusted basis from the selling price.

Step-by-step explanation:

The gain realized on the sale of Stewart's residence is calculated by taking the selling price and subtracting both the expenses of sale and the adjusted basis, which includes the cost of any capital improvements. In this case, the gain would be calculated as follows:

• Selling Price: $185,000
• Expenses of Sale: -$15,000
• Stewart's Basis in the Residence: $100,000
• Capital Improvements: +$3,000

Adjusted Basis = Stewart's Basis in the Residence + Capital Improvements = $100,000 + $3,000 = $103,000

Realized Gain = Selling Price - Expenses of Sale - Adjusted Basis = $185,000 - $15,000 - $103,000 = $67,000

The realized gain on the sale is $67,000.