Carlos, Who Is Single, Sells His Personal Residence on November

question 22

Essay

Carlos, who is single, sells his personal residence on November 5, 2019, for $400,000.His adjusted basis was $125,000.He pays realtor's commissions of $20,000.He had owned and occupied the residence for 12 years.Having decided that he no longer wants the burdens of home ownership, he invests the sales proceeds in a mutual fund and enters into a 1-year lease on an apartment.The detriments of renting, including a crying child next door, cause Carlos to rethink his decision.Therefore, he purchases another residence on November 6, 2020, for $275,000.Is Carlos eligible for exclusion of gain treatment under § 121 (exclusion of gain on sale of principal residence)? Calculate Carlos's recognized gain and his basis for the new residence.

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Definitions:

Face Value

The nominal or dollar value printed on a security or currency, representing its legal value.

Note Receivable

A written promise for amounts to be received by a business, typically including interest.

Allowance Method

An accounting technique used to account for bad debts, where an estimated amount is deducted from accounts receivable to reflect possible non-collection.

Bad Debts

are amounts owed to a company that are considered uncollectible, leading to a financial loss.