Mel,who is single,sells his principal residence (owned and occupied for 4 years)and excludes $250,000 of the realized gain.If he purchases a new residence three weeks prior to the date of sale,his basis in the new residence is the cost reduced by the amount of the § 121 exclusion.

Question

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The basis of the new residence is not reduced by the amount of the § 121 exclusion. The exclusion under § 121 allows Mel to exclude up to $250,000 of gain from the sale of his principal residence, but it does not affect the basis of a new residence purchased. The basis of the new residence is its purchase price.

Mel,who Is Single,sells His Principal Residence (Owned and Occupied for 4