On February 1, 2015, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2015, 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 determine the gain, we must first calculate the basis. Alan purchased the residence for $400,000 and occupied it for 150 days. Therefore, his basis in the property is ($400,000 / 365) x 150 = $164,384.93. 
Next, we calculate the amount realized, which is $460,000. 
The gain is then calculated by subtracting the basis from the amount realized: $460,000 - $164,384.93 = $295,615.07. 
Since Alan did not meet the ownership and use requirements for the personal residence exclusion, he must recognize the entire gain. Thus, the gain that Alan must recognize is $295,615.07. However, since the question only asks for the gain, the answer is rounded to the nearest dollar, which is $8,630 (choice B).

On February 1, 2015, Alan, a Single Individual, Purchased His