In Year 4, a taxpayer purchased a house for $240,000 to use as their principal residence. Capital improvements costing $15,000 were made in Year 8. After living in the home for 5 years, the taxpayer sold it in Year 9 for $400,000. What is the tax treatment of the sale of the taxpayer's home in Year 9?

A.

A $145,000 gain is realized and recognized.

B.

A $145,000 gain is realized and $0 is recognized.

C.

A $160,000 gain is realized and recognized.

D.

A $160,000 gain is realized and $0 is recognized.