Ben Benson, single, sold his home that he had owned for 20 years
for $695,000. He
purchased it for $140,000 and made $45,000 of capital improvements
on the home
during his time of ownership. (Use this to answer question
below)
If Ben in the preceding problem purchased another home for
$400,000, how much gain is
recognized?
ANSWER
Sales Consideration = $695,000
Cost of Purchase = $140,000
Cost of Improvement = $45,000
Total Cost of House purchased = $140,000 + $45,000
= $185,000
Therefore net Realized Gain by Ben Benson on sale of home = $695,000 - $185,000
= $510,000
But since Ben is an individual,he can exclude $ 250,000, so Gain he must recognize = $260,000.
If Ben in the preceding problem purchased another home for $400,000, then in that case no gain is to be recognized on transfer of house. As gain recognized is $260,000 which is less than the new house purchased of $400,000.
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