During 2013,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68,they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

Question

Quizplus · Accepted Answer

To calculate the recognized gain, we need to first determine the amount of the realized gain, which is the selling price ($880,000) minus the adjusted basis ($300,000 + $6,000 for painting) minus selling expenses ($53,000):

$880,000 - ($300,000 + $6,000) - $53,000 = $521,000

Next, we need to determine the amount of the excluded gain under the home sale exclusion. Since Ted and Judy owned and occupied the residence for at least 2 out of the 5 years prior to the sale, they can exclude up to $500,000 of the gain. However, since their realized gain ($521,000) exceeds this limit, they cannot exclude the entire gain. Instead, they can exclude up to $500,000 and must recognize the remaining amount:

Realized gain: $521,000
Excluded gain: $500,000
Recognized gain: $21,000

Therefore, the answer is choice C, $27,000 ($21,000 recognized gain plus $6,000 for painting the house). The fact that they purchased an annuity and rented an apartment is irrelevant to the calculation of the recognized gain.

During 2013,Ted and Judy,a Married Couple,decided to Sell Their Residence,which