Michael and Mary Mason sold for $580,000.00 in November of 2018 their residence
ID: 2518583 • Letter: M
Question
Michael and Mary Mason sold for $580,000.00 in November of 2018 their residence that they had purchased in 2004 for $75,000.00. They had made capital improvements during their 10-year ownership totaling $25,000.00. (a) What is their recognized gain should they elect to use Section 121? (b) Suppose instead that the Masons sold their home for $780,000.00. They moved into a smaller house costing $220,000.00. What is their recognized gain should they elect to use Section 121? (c) Assume instead that the Masons resided in a very depressed neighborhood and the home was sold for only $70,000.00 How much, if any, gain or loss is recognized?Explanation / Answer
A )
Following assumptions taken
The rule 121 applies to masons and recognized capital gains will be
Recogonized capital gain = sale price – ( purchase cost of residence + capital improvements) – capital gain exclusions under section 121
= $780,000 – (75,000+$25,000)- $500,000
=$580,000-$100,000-$500,000
=($20,000)
There will be no recognized capital gain
B
Following assumptions taken
The rule 121 applies to masons and recognized capital gains will be
Recogonized capital gain = sale price – ( purchase cost of residence + capital improvements) – capital gain exclusions under section 121
= $780,000 – (75,000+$25,000)- $500,000
=$780,000-$100,000-$500,000
= $180,000
C
As per 6 U.S. Code § 1212 - Capital loss carrybacks and carryovers . losses from the sale of personal property, including a residence, do not qualify for capital losses
Hence Masons cannot claim capital losses as their sale price of residence is less than purchase cost