Question

On August 8, 2020, Sam, single, age 62, sold for $210,000 his principal residence, which he has lived in for 10 years, and which had an adjusted basis of $60,000. On November 1, 2020, he purchased a new residence for $80,000. For 2020, Sam should recognize a gain on the sale of his residence of: a.$130,000 b.$25,000 c.$50,000 d.$0 e.None of these choices are correct.

Answer 1

Answer: d. $0

Step-by-step explanation:

IRS rules state that if a person sells their principal residence in which they have lived for at least 2 of the last 5 years, they are not to be taxed on up to $250,000 of profit.

Sam had lived in the sold house for 10 years and this was his principal residence so it qualifies for the above provision.

Gain = Selling price - Basis

= 210,000 - 60,000

= $150,000.

This gain is less than the $250,000 allowed so Sam would recognize a gain of $0.