Karl purchased his residence on January 2, 2019, for $260,000, after having lived in it during 2018 as a tenant under a lease with an option to buy clause. On August 1, 2020, Karl sells the residence for $315,000. On June 13, 2020, Karl purchases a new residence for $367,000.
a. What is Karl's recognized gain? His basis for the new residence? Karl's recognized gain is $ and his basis for the new residence is $
b. Assume that Karl purchased his original residence on January 2, 2018 (rather than January 2, 2019). What is Karl's recognized gain? His basis for the new residence? Karl's recognized gain is $_ and his basis for the new residence is $_.

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anthougo anthougo · Answer 1 · 2021-05-22T04:52:31+02:00

Answer:

Karl

a. Karl's recognized gain is $55,000

Karl's basis for the new residence is $367,000

b. Karl's recognized gain is $55,000

Karl's basis for the new residence is $367,000

Explanation:

a) Data and Calculations:

Initial cost of residence = $260,000

Selling price of the residence = $315,000

Cost of new residence = $367,000

Date of lease = January 2, 2019

Date of sale = August 1, 2020

Date of purchasing a new residence = June 13, 2020

a. Karl's recognized gain is $55,000 ($315,000 - $260,000)

Karl's basis for the new residence is $367,000

b. Karl's recognized gain is $55,000 ($315,000 - $260,000)

Karl's basis for the new residence is $367,000