Carl sells his principal residence, which has an adjusted basis of $150,000, for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence for $380,000 one month prior to the sale.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?
A)$0 and $380,000.
B)$0 and $408,000.
C)$28,000 and $352,000.
D)$28,000 and $380,000.

Question

Quizplus · Accepted Answer

The recognized gain is calculated by subtracting the adjusted basis and selling expenses from the selling price: $200,000 - $150,000 - $20,000 - $2,000 = $28,000. The basis of the replacement residence is not affected by the sale of the previous residence and remains at the purchase price of $380,000.

Carl Sells His Principal Residence, Which Has an Adjusted Basis