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Mr. and Mrs. Axelson sold their main home in January 2019 for $325,000. Selling expenses were...

  1. Mr. and Mrs. Axelson sold their main home in January 2019 for $325,000. Selling expenses were $20,000. The Axelsons purchased the house 30 years ago for $40,000. The gain reported on the Axelsons' joint tax return is:

  • A. $0.

  • B. $15,000.

  • C. $35,000

  • D. $265,000.

  • E. none of the above.

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Homework Answers

Answer #1

Net consideration = 325,000 - 20,000 = 305,000

Gain = 305,000 -40,000 = $ 265,000

However, this amount is subject to certain checks. The IRS provides for $500,000 exclusion under section 121 for joint returns. The taxpayer must meet both checks of ownership and use five years ending on the date of sale. The test is that taxpayers have used and owned the property for 2 out of 5 years prior to date of sale. It is assumed that they have been using the property and hence, meets both the test and eligible for exclusion. This will result into Zero gain as whole of gain would be excluded.

Thus, $ 0 would be reported as again

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