Mitchell and Debbie Dixon, a married couple, sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage. To make the sale, the Dixons pay $4,000 in commissions and $1,000 in legal costs. The couple has owned and lived in the house for seven years and their tax basis is $125,000. What is the amount of gain recognized on the sale?

Question

Quizplus · Accepted Answer

The Dixons can exclude up to $500,000 of gain from the sale of their personal residence because they meet the ownership and use tests. The gain is calculated as: ($225,000 + $70,000) - ($125,000 + $4,000 + $1,000) = $165,000. Since this is less than $500,000, no gain is recognized.

Mitchell and Debbie Dixon, a Married Couple, Sell Their Personal