Amos sells his principal residence,which has an adjusted basis of $100,000 for $150,000.He incurs selling expenses and legal fees of $6,000.He had purchased another residence one month prior to the sale for $140,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?
A)$0 and $100,000.
B)$0 and $140,000.
C)$44,000 and $100,000.
D)$44,000 and $140,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The recognized gain is calculated as follows: 
Sale price - Adjusted basis - Selling expenses - Legal fees = 
$150,000 - $100,000 - $6,000 - $0 = $44,000 (recognized gain)

Since the taxpayer elects to forgo the § 121 exclusion, the basis of the replacement residence will be adjusted by the recognized gain. Therefore, the basis of the replacement residence is $140,000 + $44,000 = $184,000.

Amos Sells His Principal Residence,which Has an Adjusted Basis of $100,000