A single woman purchased a home in 2008 for $225,000. In 2009, she spent $40,000 to add a garage with a playroom above. In 2011, she paid $4,500 to repaint the exterior of the house. The woman sold her home for $290,000 in 2012. She paid $17,000 in commissions and settlement expenses. The woman is in the 28% tax bracket. If long-term capital gain is taxed at 15%, how much federal income tax will she owe for the sale of her principle residence? A) none

B) $525

C) $1,200

D) $2,240

Question

Business

Gator

8 September, 01:01

A single woman purchased a home in 2008 for $225,000. In 2009, she spent $40,000 to add a garage with a playroom above. In 2011, she paid $4,500 to repaint the exterior of the house. The woman sold her home for $290,000 in 2012. She paid $17,000 in commissions and settlement expenses. The woman is in the 28% tax bracket. If long-term capital gain is taxed at 15%, how much federal income tax will she owe for the sale of her principle residence? A) none

B) $525

C) $1,200

D) $2,240

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Answers (1)

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Josie Jacobs · Answer 1

A) None

Explanation:

The woman needs to fulfill two requirements to apply for a capital gain tax excemption:

1) Owning the house for more than 2 years

2) The capital gain for the house should be less than $250,000

We can see that she meets both criteria:

1) She owned the house from 2009 to 2012, a total of 4 years

2) The final value of her house is $307,000, because the value of an asset takes into account all expenses incurred in the trasanction, including sales price, comissions and settlement expenses. We now substract the initial price from this final price: $307,000 - $225,000 = $82,000, which is a lot less than then maximum $250,000 allowed.

Becaushe she meets both criteria, she is exempt from capital gain income tax, therefore, she pays nothing.