Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?
A)$0 and $380,000.
B)$0 and $408,000.
C)$28,000 and $352,000.
D)$28,000 and $380,000.
E)None of these.

Question

Quizplus · Accepted Answer

Amount realized ($200,000 - $20,000 - $2,000)$178,000
Adjusted basis (150,000)
Realized gain $ 28,000
Recognized gain $ 28,000
Since Carl elected to forgo the § 121 exclusion,the realized gain of $28,000 is recognized.The basis of the residence purchased one month prior to the sale is the cost of $380,000.

Carl Sells His Principal Residence,which Has an Adjusted Basis of $150,000