Matt, who is single, sells his principal residence, which he has owned and occupied for five years, for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale, he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

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Matt qualifies for the full $250,000/$500,000 exclusion for the sale of his principal residence since he owned and occupied it for at least two years. Therefore, his recognized gain is calculated as follows: $435,000 (sales price) - $140,000 (adjusted basis) - $20,000 (selling expenses) = $275,000. However, since this gain falls within the exclusion limit, it is not taxable. His basis for the new residence is the purchase price of $385,000, which is not affected by the sale of his previous residence.

Matt, Who Is Single, Sells His Principal Residence, Which He