Paula Inherits a Home on July 1, 2017 That Had

question 88

Multiple Choice

Paula inherits a home on July 1, 2017 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, 2017, 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, 2017. 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:

Book Value

The net worth of common equity according to a firm’s balance sheet.

Common Shares

Equity securities that represent ownership in a corporation, providing voting rights and potential dividends.

Replacement Cost

The cost to replace an asset of a company at the present time, according to its current worth.

ROE

Stands for Return on Equity, a financial ratio that measures the profitability of a company in relation to shareholders' equity.