Pierce,a single person age 60,sold his home this year.He had lived in the house for 10 years.He signed a contract on March 4 to sell his home. Based on these facts,what is the amount of his recognized gain?

Question

Pierce,a single person age 60,sold his home this year.He had lived in the house for 10 years.He signed a contract on March 4 to sell his home.  Based on these facts,what is the amount of his recognized gain?

Quizplus · Accepted Answer

To determine the recognized gain on the sale of a home, you need to calculate the adjusted basis and subtract it from the selling price. The adjusted basis is the original cost plus any improvements made to the property over the years. In this scenario, we do not have information about the original cost or any improvements made to the property. Therefore, we assume Pierce's adjusted basis is the same as the original cost of the property.

As Pierce lived in the house for 10 years, he meets the ownership test required to exclude up to $250,000 of gain from the sale of the home. Since the recognized gain cannot exceed the actual gain, we do not need to calculate the actual gain.

Therefore, the recognized gain would be zero if the selling price was not higher than the adjusted basis. However, Pierce signed the contract to sell his home, and we do not have the information about the actual selling price. So, we cannot assume that the selling price was not higher than the adjusted basis. Therefore, we have to go with the second-best option of $25,000, which is the maximum amount of gain that can be excluded from taxes under the ownership and use tests.

Pierce,a Single Person Age 60,sold His Home This Year