Consider the following information for Mr. and Mrs. Gomez... - On May 26th, 2014

Question

Consider the following information for Mr. and Mrs. Gomez...

- On May 26th, 2014, they sold their principal residence, acquired in 1999, for $200,000. They paid $8,000 of selling expenses. Their basis in the residence was $70,000.

- On July 25, 2014 they purchased a new principal residence for $250,000.

- On June 2, 2015, Mr. Gomez, a bank officer, is transferred to another bank in the northern part of the state and they vacate their house.

- On July 1, 2015, they purchase a new principal residence for $420,000.

- On October 6, 2015, they sell the residence that was purchased on July 25, 2013, for $520,000. They pay $30,000 of selling expenses. (the book says July 25, 2013, but I'm assuming this is supposed to be July 25, 2014?)

Determine:

a) realized gain on the sale of the residence in 2014

b) recognized gain on the sale of the residence in 2014

c) realized gain on the sale of residence in 2015

d) recognized gain on the sale of the residence in 2015

Thank you for your assistance in advance!

Explanation / Answer

a.) Realized Gain = Selling Price - Cost - Selling Expense = $200,000 - $70,000 - $8,000 = $122,000

b.) Recognized Gain = Selling Price - Cost of New House = $200,000 - $250,000 = Negative(Will be treated 0 for tax purposed)

c.) Realized Gain = Selling Price - Cost - Selling Expense = $520,000 - $250,000 - $30,000 = $240,000

d.) Recognized Gain = Selling Price - Cost of New House = $520,000 - $420,000 = $100,000

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