On February 1, 2013, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2013, Alan sold this residence for $460,000 because he accepted a new job in another state. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Question

Quizplus · Accepted Answer

To calculate the gain, we need to determine the adjusted basis of the property. 
Adjusted basis = purchase price + any improvements or closing costs - depreciation
In this case, since Alan lived in the home for less than two years, he is not eligible for the primary residence exclusion and must pay taxes on any gain. However, he is eligible for a partial exclusion based on the amount of time he lived in the home. 
Partial exclusion = (number of days of occupancy / 730) x $250,000 (or $500,000 if married)
In this case, Alan's partial exclusion is calculated as (150 / 730) x $250,000 = $51,370. 
Since Alan lived in the home for less than one year, he cannot claim any depreciation. 
Thus, his adjusted basis is $400,000 + $0 - $0 = $400,000. 
To calculate the gain, we subtract the adjusted basis from the selling price: 
Gain = selling price - adjusted basis = $460,000 - $400,000 = $60,000. 
However, since Alan is eligible for a partial exclusion, we subtract that amount from the gain to determine the taxable gain: 
Taxable gain = gain - partial exclusion = $60,000 - $51,370 = $8,630. 
Therefore, Alan must recognize a gain of $8,630.

On February 1, 2013, Alan, a Single Individual, Purchased His