Shawn,a single taxpayer,sold the house he has lived in for seven years for $700,000.He purchased the house for $285,000.He made improvements at a cost of $125,000 and paid a $30,000 commission on the sale.What are Shawn's realized and recognized gains on the sale?
A)$260,000 realized and recognized
B)$290,000 realized and recognized
C)$260,000 realized and $10,000 recognized
D)$260,000 realized and no gain recognized
E)None of the above

Question

Quizplus · Accepted Answer

The realized gain is the difference between the selling price and the cost basis. The cost basis is the original purchase price plus the cost of improvements. In this case, the realized gain is $700,000 - ($285,000 + $125,000) = $260,000.The recognized gain is the realized gain minus any allowable deductions. In this case, the only allowable deduction is the commission on the sale. Therefore, the recognized gain is $260,000 - $30,000 = $10,000.

Shawn,a Single Taxpayer,sold the House He Has Lived in for Seven