Ian and Mia married in early 2018 and purchased a new home together. Each owned and lived in separate residences prior to the marriage. Ian purchased his residence 5 years ago for $190,000 and he added a master bedroom and bathroom addition at a cost of $40,000. Mia purchased her home three years ago for $135,000. In late 2018, Ian sold his residence for $510,000 and paid a sales commission of $8,000. After paying off his $80,000 mortgage balance, he received the remaining cash proceeds of $422,000. In late 2018 Mia sold her residence for $190,000 and paid a sales commission of $2,000. She had paid off her mortgage so she received $188,000 cash from the sale. If Ian and Mia file a joint tax return for 2018, how much gain do they recognize on their 2018 joint tax return from the sales of their previous homes?

Question

Quizplus · Accepted Answer

Ian's gain is $242,000 ($510,000 - $190,000 - $40,000 - $80,000). Mia's gain is $55,000 ($190,000 - $135,000). Their total gain is $297,000 ($242,000 + $55,000). However, they are allowed to exclude up to $250,000 of gain on the sale of their principal residence. Therefore, their recognized gain is $47,000 ($297,000 - $250,000).

Ian and Mia Married in Early 2018 and Purchased a New