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12. Michael and Mary Marshall sold for $380,000 in November of 2015 their residence that they had purchased in 2004 for $100,000. They made major capital improvements during their 11years ownership totaling $25,000. a. What is their excluded gain? How much must they recognize? b. Suppose instead that the Marshals sold their home for $720,000. They moved into a smaller house costing $220,000. What is their excluded gain? How much must they recognize? c. Assume instead that the Marshalls resided in a very depressed neighborhood and the home was sold for only $80,000. How much gain or loss is recognized?
Expert Answer
a. They can exclude the full amount of their capital gain, as it was their primary residence, they are married, and they are entitled to exclude upto $ 500,000.
b. The full amount of gain of $ 375,000 ( 720,000 – 125,000 – 220,000) would still be excluded because of the same reasons as in a. above.
c. Unfortunately, loss arising from sale of personal residence is a nondeductible personal expense. Therefore, no loss can be recognized.
