Matt, who is single, sells his principal residence, which he has owned and occupied for 5 years, for $435,000. The adjusted basis is $140,000 and the selling expenses are $20,000. Three days after the sale he purchases another residence for $385,000. Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Question

Quizplus · Accepted Answer

Matt meets the qualifications for the exclusion of up to $250,000 ($500,000 for married filing jointly) of gain on the sale of a principal residence. Since he owned and occupied the residence for at least 2 out of the 5 years preceding the sale, and the gain is less than the maximum exclusion amount, he will not owe any taxes on the sale. His recognized gain is calculated as follows: Sale price $435,000 - Selling expenses $20,000 - Adjusted basis $140,000 = $275,000. However, since this gain is less than the maximum exclusion amount, none of it is taxable. He can use the entire sale price to purchase his new residence, and his basis in the new residence will be $385,000.

Matt, Who Is Single, Sells His Principal Residence, Which He