Enrolled Agent Exam Study Group
The answer should be $22800+$20000=$248000, right?
She has a realized gain of 228,000. Normally she would qualify for the 250,000 exclusion but she had 20,000 of depreciation on the house in the past. Perhaps she rented it while away or ran a business out of the house and took deductions for business use of home. So in the past she took a 20,000 deduction against her ordinary income and now the IRS wants it back. So she cannot use the exclusion for that 20,000. She can only exclude 228,000 - 20,000 or 208,000.