Question

Salvador and Jenna Porter purchased a home in Kenosha, Wisconsin, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until November 1 of year 1, when they sold the home for $500,000. The Porters' marginal ordinary tax rate is 35 percent. Note: Leave no answer blank. Enter zero if applicable. Required: a-1. Assume that the Porters sold their home and moved because they didn't like their neighbors. How much gain will the Porters recognize on their home sale

Answer 1

The Porters will recognize a gain of $100,000, as they sold their home for $100,000 more than they purchased it. Since they did not meet the residency requirement for the tax exclusion, the full gain is recognized as taxable income.

Step-by-step explanation:

The Porters will recognize a gain on their home sale based on the difference between the selling price and their purchase price. Since they bought the home for $400,000 and sold it for $500,000, they would have a gain of $100,000. However, because they did not live in the home for at least two years, this gain would not qualify for the exclusion typically provided by the Internal Revenue Service (IRS) for the sale of a primary residence.

Consequently, assuming that no other exceptions or adjustments apply, and they sold the home because they didn't like their neighbors (without an IRS-recognized specific reason), they would recognize the full gain of $100,000 as taxable income.