Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually
ID: 2499009 • Letter: S
Question
Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) (Leave no answer blank. Enter zero if applicable.)
a. Sarah used the home as her principal residence through December 31, 2013. She used the home as a vacation home from January 1, 2014, until she sold it on January 1, 2016.
b. Sarah used the property as a vacation home through December 31, 2013. She then used the home as her principal residence from January 1, 2014, until she sold it on January 1, 2016.
c. Sarah used the home as a vacation home from January 1, 2008, until January 1, 2015. She used the home as her principal residence from January 1, 2015, until she sold it on January 1, 2016.
d. Sarah used the home as a vacation home from January 1, 2008, through December 31, 2009. She used the home as her principal residence from January 1, 2010, until she sold it on January 1, 2015.
Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) (Leave no answer blank. Enter zero if applicable.)
a. Sarah used the home as her principal residence through December 31, 2013. She used the home as a vacation home from January 1, 2014, until she sold it on January 1, 2016.
b. Sarah used the property as a vacation home through December 31, 2013. She then used the home as her principal residence from January 1, 2014, until she sold it on January 1, 2016.
c. Sarah used the home as a vacation home from January 1, 2008, until January 1, 2015. She used the home as her principal residence from January 1, 2015, until she sold it on January 1, 2016.
d. Sarah used the home as a vacation home from January 1, 2008, through December 31, 2009. She used the home as her principal residence from January 1, 2010, until she sold it on January 1, 2015.
Explanation / Answer
a. $200,000 of gain is excluded and $0 gain is recognized. Sarah meets the ownership and use tests because she has owned the property for two or more years and used it as her principal residence for at least two out of the lastfive years, so she can exclude her gain up to $250,000.She does not have anynonqualified use because the nonqualified use period does not include the five taxyears immediately after she stopped using the home as a principal residence.b. $106,667 of gain is excluded and $93,333 of gain recognized.If not for the limitationfor nonqualified use after December 31, 2008, Sarah could have excluded the entire$200,000 gain.Howevbecause Sarah sold the home after December 31, 2008 andshe had nonqualified use after December 31, 2008, she is not allowed to exclude apercentage of the gain that would otherwise be excluded.The percentage of the gainthat is not excluded is a fraction, the numerator of which is the nonqualified use afterDecember 31, 2008, and the denominator is the amount of time she owned theproperty.In this case, $93,333 of the $200,000 gain (46.67%) is not excludable.Thenumerator of the disallowance fraction is 3.5 years of post 2008 nonqualified use(January 1, 2009 through July 1, 2012) and the denominator is 7.5 years ofownership (January 1, 2007 through July 1, 2014) (3.5/7.5 = 46.67%).
c. The full amount; $200000 would be recognized as capital gains.
d. The full amount; $200000 would not be recognized as capital gains as capital gains upto $500000 are tax free, if arise on sale of principal residence.
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