Paula inherits a home on July 1,2016 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2016,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2016.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?
A)$0;$500,000.
B)$193,000;$600,000.
C)$443,000;$600,000.
D)$475,000;$600,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The recognized gain on the sale of the old principal residence is calculated as follows:
Sales price: $600,000
Adjusted basis: $125,000
Selling expenses: ($30,000 + $2,000) = $32,000
Recognized gain: $443,000 (line 10 of Schedule D)

Her basis in the inherited home is the fair market value at the date of death of the decedent, which is $500,000. The cost of the improvements that she made to the inherited home does not affect her basis in the property. Therefore, her basis in the inherited home is $500,000.

Paula Inherits a Home on July 1,2016 That Had a Basis