A property in Illinois sold for $520,000. The seller had purchased it for $380,000, made $45,000 in improvements, and had selling costs of $31,200. What is the adjusted basis and what is the taxable gain?

Explanation

Adjusted basis = Purchase price + Improvements = $380,000 + $45,000 = $425,000. Amount realized = Sale price - Selling costs = $520,000 - $31,200 = $488,800. Taxable gain = Amount realized - Adjusted basis = $488,800 - $425,000 = $63,800. Selling costs reduce the amount realized, which reduces the taxable gain. This is the basic capital gains calculation, before applying any exclusions (like the primary residence exclusion).