California Real Estate Practice Exam 2025 – The All-in-One Resource to Ace Your Licensing Exam!

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Question: 1 / 585

Adam purchased a residence for $180,000 and made $20,750 in capital improvements. He sold the house for $200,000 and moved into an apartment on a 3-year lease. What kind of tax effect would this sale have?

Capital gain of $750

This sale would have a tax effect of a capital gain of $750. This is because the capital improvements of $20,750 would increase the cost basis of the property to $200,750. Therefore, when Adam sells the house for $200,000, the proceeds would be lower than the cost basis, resulting in a capital gain of $750. The other options are incorrect because B and C assume that the property was sold at a loss, which is not the case. Option D is not correct because there is a capital gain of $750, even though it may not be subject to taxes due to the eligibility of excluding capital gains from a primary residence.

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Capital loss of $750

Capital loss of one-half of the $750

No effect

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