Karen and Joe brought a new house on November 1, 2014. Instead of living in it they
Question:
Karen and Joe brought a new house on November 1, 2014. Instead of living in it they rent it out. They paid $200,000 in cash, assumed $275,000 of the seller’s mortgage and took out an additional mortgage of $300,000. They had closing costs of $33,000. The seller paid the entire year’s real estate tax of $24,000 on January 1. During the time that they rented the house they had $35,000 of taxable income and took $55,000 of depreciation. On January 1, 2019 they moved into the house and used it as they primary residence until they sold it. Due to a hardship they had to sell the house on October 1, 2020. They sold the house for $1,150,000 in cash and the buyer assumed $100,000 of their mortgages. They paid $18,000 of real estate taxes and the buyer paid $6,000 of real estate taxes. They had $23,000 of closing costs. The buyer took out a mortgage and Karen and Joe paid the $10,000 of points associated with the mortgage.
What was Karen and Joe's realized gain on the sale?
What was their recognized gain on the sale? What is the character of the gain or loss for tax purposes? (capital vs ordinary)
Core Concepts Of Accounting Information Systems
ISBN: 9780470507025
11th Edition
Authors: Nancy A. Bagranoff, Mark G. Simkin, Carolyn Strand Norman