Question

Stewart, age 44, sells his personal residence of 4 years on June 14, 2017, for $190,000. The expenses of sale are $15,000 and he has paid for capital improvements of $3,000. Stewart purchased the residence for $100,000. On February 2, 2018, Stewart purchases and occupies a new residence at a cost of $200,000. Calculate the gain realized on the sale of Stewart's residence. How much gain must be recognized on the sale of Stewart's residence? Calculate Stewart's basis in the new residence.

Answer 1

Stewart realized a gain of $75,000 on the sale of his residence. He must recognize a gain of $72,000. His basis in the new residence is $128,000.

Step-by-step explanation:

To calculate the gain realized on the sale of Stewart's residence, we subtract the purchase price and the expenses of sale from the selling price:

Gain realized = Selling price - Purchase price - Expenses of sale

In this case, the gain realized would be $190,000 - $100,000 - $15,000 = $75,000.

To determine the gain that must be recognized on the sale of Stewart's residence, we need to consider the capital improvements made. The capital improvements are added to the basis of the residence:

Gain recognized = Gain realized - Capital improvements

The gain recognized in this case would be $75,000 - $3,000 = $72,000.

To calculate Stewart's basis in the new residence, we need to subtract the unrecognized gain from the purchase price of the new residence:

Basis in the new residence = Purchase price of new residence - Unrecognized gain

Stewart's basis in the new residence would be $200,000 - $72,000 = $128,000.