When calculating the capital gain from selling a principal residence, what must be deducted from the sales price?

To determine the capital gain from selling a principal residence, it is essential to consider the property's adjusted cost basis. The adjusted cost basis includes the original purchase price plus any improvements made to the property, minus any depreciation taken, if applicable. When you sell the property, you need to calculate the net sales price by subtracting any selling expenses (such as real estate agent commissions and closing costs) from the sale price.

Once you have the net sales price, you then compare it to the adjusted cost basis to find the capital gain. This correct approach reflects the true profit made from the sale by accounting for the costs associated with acquiring and maintaining the property, which leads to an accurate calculation of capital gain.

The other options focus on different aspects of the selling process, but they do not capture the comprehensive relationship between the sale price, selling expenses, and adjusted cost basis that is necessary for determining the capital gain.