Bill and Brenda bought their home for $150,000 seven years ago and have lived in it ever since. They made $50,000 of improvements. They sold the home for $450,000 and paid $30,000 in selling expenses, including the broker's commission. On what amount will they pay capital gains tax?

$0

Explanation:

The IRS Section 121 allows married couples who have purchased and lived in a house during the last 2 years a $500,000 capital gains exclusion ($250,000 for a single person). In this case it doesn't even matter what is Bill and Brenda's basis for the house, since the net selling price is $420,000 (it is less than the exclusion).

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