In March 2010, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1991. Davis added a bathroom for $5,000 in 2006. What amount of gain is recognized from the sale of the former residence on Davis' 2010 tax return?
a) $160,000
b) $ 90,000
c) $ 40,000
d) $0
Answer: c) $ 40,000