California Real Estate Practice Exam

A 60-year-old man has been living in a home he bought 9 years ago, for which he paid $90,000. He recently sold the home for $120,000, incurring $9,600 selling expenses and brokerage fees. What capital gains taxes will he owe?

1. $20,400

2. $30,000

3. $9,600

4. None

The correct answer is: $20,400

To determine the capital gains taxes owed by the man in this scenario, it is necessary to calculate the capital gain from the sale of the home. First, the selling price of the home is $120,000. From this amount, the selling expenses and brokerage fees of $9,600 must be subtracted. This gives a net sales price of $110,400 ($120,000 - $9,600). Next, we need to identify the purchase price, which is $90,000. To find the capital gain, we subtract the original purchase price from the net sales price: Capital gain = Net sales price - Purchase price Capital gain = $110,400 - $90,000 = $20,400. Since the man is 60 years old and has owned the home for more than two years, he qualifies for the capital gains exclusion for primary residences. For single taxpayers, up to $250,000 of capital gains from the sale of a primary residence can be excluded, and for married couples, the exclusion can be up to $500,000. Given that his capital gain is $20,400, he is within the exclusion limit. Therefore, the correct calculation shows that after all applicable exclusions, the man will