Clem and Chloe, a married couple, sell their principal residence that they have owned and occupied for the past twenty years.  the adjusted basis for the residence is $324,000.  They incurred selling expense of $30,000.  How much gain must they recognize if they sell the residence for $904,000?a.  $50,000b.  $290,000c.   $40,000d.  $300,000

Question
Asked Apr 27, 2019

Clem and Chloe, a married couple, sell their principal residence that they have owned and occupied for the past twenty years.  the adjusted basis for the residence is $324,000.  They incurred selling expense of $30,000.  How much gain must they recognize if they sell the residence for $904,000?

  • a.  $50,000
  • b.  $290,000
  • c.   $40,000
  • d.  $300,000

 

check_circleExpert Solution
Step 1

Disposal of Assets: Disposal is an activity of selling the worn-out assets that is no longer in need for the business, in return of some consideration. Disposal may be made in any of the following situations:

  • Disposal with no gain no loss: When the asset is disposed with no consideration received.
  • Disposal with gain: When the asset is disposed for more than its book value (original cost less accumulated depreciation).
  • Disposal with loss: When the asset is disposed for less than its book value.
Step 2

Compute the amount of gain recognized on the sale of residence:

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Step 3

Note: If the owner of the house occupied and lives in the house for two of the five years before the sale (house), then the owner is eligible for a tax-free amount of $250,000. If they are married and filed a joint re...

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