What is the character and amount of gain when Alec sells his principal residence for $205,000 after purchasing it for $175,000?

When Alec sells his principal residence for $205,000 after purchasing it for $175,000, he realizes a gain of $30,000, which is calculated by subtracting the purchase price from the selling price. Since Alec owned the property for more than one year, the gain is classified as a long-term gain. In the context of personal residences, long-term capital gains usually apply when the property has been held for over a year.

The gain is also classified as a capital gain because it arises from the sale of a capital asset—real property in this case. Long-term capital gains typically enjoy favorable tax treatment compared to ordinary income; therefore, this characterization is essential for understanding Alec's tax implications from the sale.

This classification properly reflects the nature of the transaction and the type of asset involved, emphasizing the distinction between capital and ordinary gains within the tax code.