Nell, Nina, and Nora Sanders, who are sisters, sell their principal residence (o
ID: 2460887 • Letter: N
Question
Nell, Nina, and Nora Sanders, who are sisters, sell their principal residence (owned as tenants in common) in which they have lived for the past 25 years. The youngest of the sisters is age 60. The selling price is $960,000, selling expenses and legal fees are $63,000, and the adjusted basis is $120,000 (the fair market value of the residence when inherited from their parents 25 years ago; they made no capital improvements during the time they held the residence.) Because the sisters are going to live in rental housing, they do not plan to acquire anther residence. Nell has contacted you on behalf of the three sisters regarding the tax consequences of the sale.
A. Write a letter to Nell advising her of the tax consequences and how taxes can be minimized. Nell's address is 100 Oak Avenue, Billings, MT 59101.
B. Prepare a memo for the tax riles
Explanation / Answer
Answer:
October 20, 2011
Ms. Nell Sanders
100 Oak Avenue Billings,
Montana 59101
Dear Nell:
I am responding to your inquiry regarding the tax consequences of the sale of the residence. Since each of you has owned and lived in the house for at least 2 of the past 5 years, each of you qualify for the § 121 exclusion. According to our conversation, no replacement residence will be acquired. If this should occur, the adjusted basis for the new residence will be its cost. In any event, each of you will make the following calculation associated with your Federal income tax return:
Amount realized ($320,000 sales price – $21,000 selling expenses and legal fees) $299,000
Adjusted basis (40,000)
Realized gain $259,000
§ 121 exclusion (250,000)
Recognized gain $ 9,000
As noted above, each of you qualifies for a maximum exclusion of realized gain of $250,000.
Sincerely,
Louis Jordan, CPA
Answer:B TAX FILE MEMORANDUM
DATE: October 20, 2011
FROM: Louis Jordan
SUBJECT: Nell Sanders Sale of Residence
Nell Sanders contacted us on behalf of herself and her sisters Nina and Nora. They recently sold the house which they inherited from their parents 20 years ago and have lived in for the past 25 years. At the time the house was inherited, it had a fair market value of $120,000. Each sister had a one-third ownership interest in the house.
During the period they owned and occupied the house, the sisters incurred various expenditures for repairs and maintenance. However, during this period, they made no capital expenditures.
They recently sold the house for $960,000. Selling expenses and legal fees were $63,000. They do not intend to acquire a replacement residence.
Each of the sisters qualifies for exclusion treatment under § 121. All three satisfy the at least two years ownership and occupancy requirements. Since the realized gain for each sister is less than the $250,000 exclusion, there is no recognized gain. The tax consequences for each sister are as follows:
Amount realized ($320,000 sales price – $21,000 selling expenses and legal fees) $299,000
Adjusted basis (40,000)
Realized gain $259,000
§ 121 exclusion (250,000)
Recognized gain $ 9,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.