Question

Drew sold his house for $99,000 and had $9,000 in closing costs. His beginning basis was $45,000 and he spent $14,000 on capital improvements. What is Drew's capital gain for tax purposes? Drew does not qualify for an exclusion. a. $59,000 b. $25,000

c. $108,000
d. $70,000

Answer 1

Drew's capital gain for tax purposes is $31,000, which is calculated by subtracting his adjusted basis ($59,000) from his net selling price ($90,000).

Step-by-step explanation:

To calculate Drew's capital gain for tax purposes, we need to consider his adjusted basis and the selling price minus any selling costs. To find his adjusted basis, we start with his beginning basis, add any capital improvements made to the property, and subtract any depreciation (if applicable, which is not mentioned in the question).

Drew's beginning basis is $45,000, and he spent $14,000 on capital improvements, so his adjusted basis is:

$45,000 (beginning basis) + $14,000 (capital improvements) = $59,000 (adjusted basis)

Drew sold his house for $99,000 but had $9,000 in closing costs, so his net selling price is:

$99,000 (selling price) - $9,000 (closing costs) = $90,000 (net selling price)

Now, to find Drew's capital gain, we subtract his adjusted basis from his net selling price:

$90,000 (net selling price) - $59,000 (adjusted basis) = $31,000 (capital gain)