Donald and Candice sell their home for $695,000,incurring selling expenses of $30,000.They purchased the residence for $125,000 and made capital improvements totaling $20,000 during the 20 years they lived there.What is their realized gain and recognized gain on the sale?

Realized Recognized

Question

Donald and Candice sell their home for $695,000,incurring selling expenses of $30,000.They purchased the residence for $125,000 and made capital improvements totaling $20,000 during the 20 years they lived there.What is their realized gain and recognized gain on the sale?
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Realized Recognized

Quizplus · Accepted Answer

Realized gain = selling price - selling expenses - purchase price - capital improvements
Realized gain = 695,000 - 30,000 - 125,000 - 20,000 = 520,000
Recognized gain = realized gain - any applicable exemptions or exclusions
Since the homeowners lived in the residence for at least 2 of the last 5 years, they qualify for the capital gains exclusion of up to $500,000 for married couples filing jointly. As their realized gain is only $520,000, their recognized gain is $20,000. Therefore, the correct answer is C) $520,000 $20,000.

Donald and Candice Sell Their Home for $695,000,incurring Selling Expenses