Problem
Shelia and Thomas were married on February 14, 2016, and acquired joint ownership of a primary personal residence they both intend to occupy for the rest of their lives on November 10, 2016 for $650,000. As an act of a true gentleman, Thomas agreed that the title of the new residence would be in Shelia's name only, even though Thomas contributed more than half of the purchase price. They spent $25,000 to remodel the kitchen before moving in. In order to raise the money to purchase this property without involving a lender:
(a) Shelia sold her prior primary principal residence for $275,000, with a date of closing on the sale of October 31, 2016. Shelia and her first husband, Bill, jointly acquired the residence for $110,000 on May 3, 2010 and resided continuously in the residence until their divorce, which became final on May 28, 2015. Shelia was awarded full ownership of this home as part of the property settlement incident to the divorce (as part of a non-taxable property settlement agreement), and continued to occupy the property as her principal residence until the date of the sale. No part of the house was used for business purposes and Shelia has never elected to use the personal residence exclusion on the sale of any prior principal residence.
(b) Thomas sold his prior primary principal residence for $475,000, with a date of closing on the sale of November 1, 2016. Thomas was a confirmed bachelor until Shelia changed his life forever. He acquired his residence for $140,000 in 1997 and has continuously resided on the property as his primary principal residence, since the date of acquisition. No part of Thomas' house has ever been used for business purposes and no other person has ever owned any portion of the house.
i) What is Shelia's realized gain on the sale of her prior residence for $275,000?
ii) What is Shelia's recognized gain on the same sale?
iii) What is Thomas' realized gain on the sale of his prior residence for $375,000?
iv) What is Thomas' recognized gain on the same sale?
v) What is the basis of the new home acquired by Shelia and Thomas on November 10, 2016?