Brian and Becca have been married and living together in Brian's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home, which has an adjusted basis of $120,000, for $700,000.Brian and Becca plan to use the § 121 exclusion (exclusion of gain on sale of principal residence).In Becca's prior marriage to Dan, Dan sold his principal residence and used the § 121 exclusion.Becca and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Brian and Becca purchase a replacement residence for $650,000 one month after the sale of their home.What is the recognized gain and basis for the new home?
A)$0; $80,000.
B)$80,000; $150,000.
C)$80,000; $650,000.
D)$330,000; $650,000.

Question

Quizplus · Accepted Answer

The recognized gain is $80,000, and the basis for the new home is $650,000. The sale price of the home is $700,000 with an adjusted basis of $120,000, resulting in a total gain of $580,000. Under § 121, a married couple can exclude up to $500,000 of gain on the sale of their principal residence if they meet the ownership and use tests. Brian and Becca qualify for this exclusion, so they can exclude $500,000 of their $580,000 gain, leaving $80,000 as the recognized gain. The purchase price of the new home is $650,000, which becomes its basis, as the recognized gain does not affect the basis of the new home.

Brian and Becca Have Been Married and Living Together in Brian's