Paula Inherits a Home on July 1,2016 That Had a Basis

question 103

Multiple Choice

Paula inherits a home on July 1,2016 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2016,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2016.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

• A)$0;$500,000.
• B)$193,000;$600,000.
• C)$443,000;$600,000.
• D)$475,000;$600,000.
• E)None of the above.

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Definitions:

Slope

In mathematics and economics, the measure of the steepness or incline of a line, often used to describe changes in variables in relation to one another.

Isocost

A line representing all combinations of a firm's inputs that cost the same amount.

Capital

Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.

Total Cost

The sum of all the costs incurred by a company in producing a good or service, including both fixed and variable costs.