In January 2017 Alessandro a single person sold the principl

In January 2017 Alessandro, a single person, sold the principle residence in which he had lived for 6 years for $695,000. Back in 2011 Alessandro had purchased the home for $140,000 and made $45,000 of capital improvements on the home during his time of ownership. How much gain does he recognize from the sale?

Solution

FULL VALUE OF CONSIDERATION = $695000

LESS: COST OF ACQUISITION = $140000

COST OF IMPROVEMENT = $45000

LONG TERM CAPITAL GAIN = $510000

Since the asset is held for more than one year it is a long term capital asset.