Darren (Single) Purchased a Home on January 1, 2010 for $400,000

question 5

Short Answer

Darren (single) purchased a home on January 1, 2010 for $400,000. Darren lived in the home as his primary residence until January 1, 2012 when he began using the home as a vacation home. He used the home as a vacation home until January 1 2013 (he used a different home as his primary residence from January 1, 2012 to January 1, 2013). On January 1, 2013, Darren moved back into the home and used it as his primary residence until January 1, 2014 when he sold the home for $500,000. What amount of the $100,000 gain Darren realized on the sale must he recognize for tax purposes in 2014?

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs of a product or service, used to cover fixed costs and generate profit.

Fixed Manufacturing Overhead

The set costs associated with operating a manufacturing facility that do not vary with the level of production, including salaries of managers and depreciation of equipment.

Unit Product Cost

The total cost (both fixed and variable) associated with producing a single unit of a product.

Additional Contribution Margin

The increase in contribution margin generated by an additional unit of sales, reflecting the revenue minus variable costs for that unit.