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 the above.

Question

Quizplus · Accepted Answer

The recognized gain is calculated as the selling price ($200,000) minus the adjusted basis ($150,000) and selling expenses ($20,000 + $2,000), resulting in a gain of $28,000. Since Carl elects to forgo the §121 exclusion, the gain is recognized. The basis of the replacement residence is its purchase price, $380,000, as the §121 exclusion is not applied to adjust the basis.

Carl Sells His Principal Residence, Which Has an Adjusted Basis