During 2017, 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?
A)$0
B)$17,000
C)$27,000
D)$527,000
E)None of the above

Question

Quizplus · Accepted Answer

The recognized gain is calculated as follows:
Sale price: $880,000
Minus: Basis: $300,000
Minus: Selling expenses: $53,000
Minus: Improvement costs: $6,000
Total: $521,000
Therefore, the recognized gain is $521,000. However, since they are both over 55 years old and meet the ownership and use tests, they can exclude up to $500,000 of the gain from their taxable income. Therefore, the recognized gain is reduced to $21,000. However, since they purchased an annuity with the net proceeds from the sale, they may be subject to taxation on a portion of the gain that exceeds their basis, which is $300,000. Therefore, the amount subject to taxation is $21,000 - $300,000 = ($279,000).  Additionally, there is no basis for electing none of the above as an answer as the answer choices are all specific numerical values.

During 2017, Ted and Judy, a Married Couple, Decided to Sell