Alicia buys a beach house for $325,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $450,000 and pays $22,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

Question

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The recognized gain is $80,000. The cost of the house is $325,000, and the cost of the additional room is $45,000, for a total cost of $370,000. The selling price is $450,000, and the commissions and legal fees are $22,000 and $4,000, respectively, for a total of $26,000. The recognized gain is the selling price minus the cost, minus the commissions and legal fees, or $450,000 - $370,000 - $26,000 = $80,000.

Alicia Buys a Beach House for $325,000 Which She Uses