3. Mathew Murphy, single, sold his home that he had owned for 20 years for $670,000. He purchased it for $110,000 and made $40,000 of capital improvements on the home during his time of ownership.
(a) How much gain is excluded? How much is recognized?
(b) If Mathew purchased another home for $420,000, how much is excluded and recognized?
(a) Mathew's adjusted basis in the home is the sum of the $110,000 for its purchase and the $40,000 of capital improvements, or ...
This solution discusses the federal capital gain exclusion from selling one's principal residence and illustrates how to compute it and how it applies if they buy another home.