Paula inherits a home on July 1,2014 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2014,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2014.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?
A)$0;$500,000.
B)$193,000;$600,000.
C)$443,000;$600,000.
D)$475,000;$600,000.
E)None of these.

Question

Quizplus · Accepted Answer

Amount realized ($600,000 - $30,000 - $2,000)$568,000
Adjusted basis (125,000)
Realized gain $443,000
§ 121 exclusion (250,000)
Recognized gain $193,000
The adjusted basis of the inherited residence is the fair market value at the date of the decedent's death,$500,000,increased by the capital expenditures of $100,000 for a total of $600,000.

Paula Inherits a Home on July 1,2014 That Had a Basis