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Exclusion for house sale gain or reportable gain

Milton, who is single, listed his personal residence with a realtor on March 3, 2005, at a price of $250,000. He rejected several offers in the $200,000 range during the summer. Finally, on August 16, 2005, he and the purchaser signed a contract to sell at $245,000. The sale (i.e. closing) took place on September 7, 2005. The closing statement showed the following disbursements:

Realtor's Commission $14,000
Appraisal Fee $500
Exterminator's Certificate $300
Recording Fees $400
Mortgage to First Bank $180,000
Cash to Seller $49,800

Milton's adjusted basis for the house is $150,000. He owned and occupied the house for eight years. On October 1, 2005, Milton purchases another residence for $210,000.

a. Calculate Milton's recognized gain on the sale.
b. What is Milton's adjusted basis for the new residence?
c. Assume instead that the selling prices is $735,000. What is Milton's
recognized gain? His adjusted basis for the new residence?

Solution Preview

a. Milton sold the house at a gain of $79,800 which is calculated as the selling price of $245,000 minus the selling costs of (14,000 + 500 + 300 + 400) and minus his basis of $150,000. That gain of $79,800 ...

Solution Summary

Each of the questions is answered with calculations and explanation of current law as it relates to gain exclusion under Sec 121.