During 2018, 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 determine the recognized gain, we first need to find the amount realized. 
Amount realized = selling price - selling expenses 
= $880,000 - $53,000 
= $827,000

Next, we need to calculate the adjusted basis of the property. 
Adjusted basis = original cost + improvements - depreciation 
They did not mention any depreciation, so we can assume none. 
Therefore, adjusted basis = $300,000 + $6,000 
= $306,000

Now, we can calculate the recognized gain. 
Recognized gain = amount realized - adjusted basis 
= $827,000 - $306,000 
= $521,000

However, they qualify for the home sale exclusion since they owned and occupied the residence for at least 2 out of the 5 years before the sale, and the gain is less than the exclusion amount of $500,000 for a married couple filing jointly. 
So the recognized gain is actually the lower of the gain ($521,000) and the exclusion amount ($500,000), which is $27,000. Therefore, the answer is C.

During 2018, Ted and Judy, a Married Couple, Decided to Sell