Question

Exercise 13-43 (Algorithmic) (LO. 8) On August 31, 2018, Harvey and Ling, who file a joint return and live in Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized gain of $367,000 was excluded under $ 121. They purchased another personal residence in Charleston for $587,200 on September 1, 2018. However, in 2019, Harvey's employer transfers him to Houston, Texas. The couple sells the Charleston home on February 28, 2019, and purchases a new home in Houston. The realized gain on the second sale is $330,300. Do not round any division. What is Harvey and Ling's recognized gain on the second sale?

Answer 1

Given Information,

Harvey and Ling had made property sale(real estate sale-personal property)

1st sale on the 31st of August 2018, after 10 years of purchase had sold it which had a realized gain of $367,000 which was excluded under clause 121- stating which they filed a joint return and it fulfills the clause that they owned the property for more than 5 years there was and exclusion .

They bought another property(personal residence) in Charleston on the September 1st,2018  for $587,200. As Harvey's employer transferred him, Harvey and Ling sold this new property for $917,500 (for gain) on February 28th,2019 itself, which is just after 6 months of "purchase",which means they can't be claiming the exclusion under 121 as the property isn't 2 or more years old.

Realized Gain isn't taxable as it not yet entered in the books of accounts , which is the net sale value after sale of asset/selling price minus closing or transaction costs.

Recognized Gain is the taxable part of the Realized gain

here $250,000 can be tax exempted,the gain is $80,300 which is Recognized and is taxable. Though they are married they can't file for return as the sale happened jut after 6 months of purchase.

So Recognized Gain is $330,300( taxable).