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29 February, 08:51

Olessa, single and age 60, sells her home for $540,000 after living there for 20 years. Her adjusted basis in that home was $220,000 and she has an additional $10,000 of selling expenses. What is the maximum gain that Olessa must report in connection with the sale of her principal residence?

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  1. 29 February, 10:32
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    Net gain = $60,000

    Explanation:

    Given:

    Sale value of house = $540,000

    Adjusted value = $220,000

    Selling expenses = $10,000

    Computation of gross profit on the house:

    Gross profit on sale = Sale value of house - Adjusted value - Selling expenses

    Gross profit on sale = $540,000 - $220,000 - $10,000

    Gross profit on sale = $310,000

    Maximum limit on gain from sale of house = $250,000 (Form number 1040, Schedule D)

    Computation of net gain:

    Net gain = $310,000 - $250,000

    Net gain = $60,000
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