On January 5,2010,Bill Sells His Principal Residence with an Adjusted

question 19

Essay

On January 5,2010,Bill sells his principal residence with an adjusted basis of $185,000 for $500,000.He has owned and occupied the residence for 18 years.He pays $30,000 in commissions and $1,200 in legal fees in connection with the sale.One month before the sale,Bill painted the house at a cost of $4,000 and repaired various items at a cost of $2,500.On October 15,2010,Bill purchases a new home for $400,000.On November 15,2011,he pays $25,000 for completion of a new room on the house,and on January 14,2012,he pays $15,000 for the construction of a pool.What is the Bill's recognized gain on the sale of his old principal residence and what is the basis for the new residence?

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Definitions:

Forecast Cash Flows

The projection of a company or project's future financial liquidity over a specific period.

Capital Rationing

Capital Rationing is the process of allocating limited capital resources among different projects or divisions within an organization, prioritizing them based on their potential returns or strategic importance.

Capital Spending

Expenditures by a company for the purchase, improvement, or maintenance of long-term assets to improve efficiency or capacity.