Jane sold her personal home for $148,000. Two months later she purchased and moved into a new home that cost $145,000. The adjusted cost basis of the first home was $140,000. For purposes of federal income tax, which statement is true?

A. A basis of $148,000 and no taxable gainB. A basis of $145,000 and a taxable gain of $3,000C. A basis of $130,000 and a taxable gain of $18,000D. A basis of $140,000 and no taxable gain

Question

Nikolai Harper

Business

6 March, 00:48

Jane sold her personal home for $148,000. Two months later she purchased and moved into a new home that cost $145,000. The adjusted cost basis of the first home was $140,000. For purposes of federal income tax, which statement is true?

A. A basis of $148,000 and no taxable gainB. A basis of $145,000 and a taxable gain of $3,000C. A basis of $130,000 and a taxable gain of $18,000D. A basis of $140,000 and no taxable gain

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Answers (1)

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Kamren Marshall · Answer 1

D

Explanation:

The basis of the first home will be the adjusted cost basis of $140,000. The return will be $148,000, resulting in a capital gain profit of $8,000. But since the property is her personal home, Jane will get a primary residence exclusion of $250,000 if she lived in the house for at least 2 out of the last 5 years. Because $8,000 is less than the total exclusion, there will be no taxable capital gain.