Michael and Mary Mason sold for $580,000.00 in November of 2018 their residence

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.As a married couple residing in the residence for at leastlast 2 years,filing joint return, one of the spouses owned theproperty more than 5 years,not availing 121 exclusion in last 2years,

Michael and Mary Mason qualify for $500,000.Also purchase priceof $75000 and capital improvement of $25000 will be excluded fromfrom capital gain.

So, their recognized gain should they select to usesection 121 =$580000-$500000-$75000-$25000 =($20000) i.e regognizedloss is $20,000

b.As a married couple residing in the residence for at leastlast 2 years,filing joint return, one of the spouses owned theproperty more than 5 years,not availing 121 exclusion in last 2years,
Michael and Mary Mason qualify for $500,000.Also new smaller housecost of $220000 will be excluded from from capital gain.

So, their recognized gain should they select to usesection 121=$780000-$500000-$220000 =$60000

c)As a married couple residing in the residence for at leastlast 2 years,filing joint return, one of the spouses owned theproperty more than 5 years,not availing 121 exclusion in last 2years,
Michael and Mary Mason qualify for $500,000.

So, their recognized loss should they select to usesection 121=70000-500000 =$430000

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