During 2012, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $225,000.They had owned and occupied the residence for 16 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $10,000 and paid for the work immediately.They sold the house in May for $795,000.Broker's commissions and other selling expenses amounted to $45,000.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?
A)$0.
B)$15,000.
C)$25,000.
D)$525,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The recognized gain is calculated as follows:

Sale price - Selling expenses - Adjusted basis = Gain or Loss
$795,000 - $45,000 - ($225,000 + $10,000 painting cost) = $25,000 gain

Since Ted and Judy are both age 68, they may be eligible for the home sale exclusion of up to $500,000 for married couples, if they meet certain ownership and use tests. However, based on the information provided, it is unclear whether they meet these requirements or have claimed the exclusion.

During 2012, Ted and Judy, a Married Couple, Decided to Sell