Steve Pratt, who is single, purchased a home in Spokane, Washington, for $472,50
ID: 2582741 • Letter: S
Question
Steve Pratt, who is single, purchased a home in Spokane, Washington, for $472,500. He moved into the home on February 1 of year 1. He lived in the home as his primary residence until June 30 of year 5, when he sold the home for $807,500. (Leave no answer blank. Enter zero if applicable.)
a. What amount of gain will Steve be required to recognize on the sale of the home?
b. Assume the original facts, except that the home is Steve’s vacation home and he vacations there four months each year. Steve does not ever rent the home to others. What gain must Steve recognize on the home sale?
c. Assume the original facts, except that Steve married Stephanie on February 1 of year 3 and the couple lived in the home until they sold it in June of year 5. Under state law, Steve owned the home by himself. How much gain must Steve and Stephanie recognize on the sale (assume they file a joint return in year 5).
Explanation / Answer
Answer to :
a) Since Steve Pratt has moved into the home in spokane, washington on february1 of year1 and has lived in the home as his primary residence until june 30 of year 5, he will qualify for gain exclusion because he has owned and used the home as primary residence for atleast 2 years of period in the 5 yers period before selling it .Gain exclusion for single tax payer is $ 2,50,000 .
ANSWER TO
b) In this case , Steve is required to recognise the entire gain since he does not meet the criteria to claim exclusion, the home in which Steve stays is not his principal residence for 2 years during the 5 years period before the date of sale. Hence the following amount is required to be realised by steve
ANSWER TO
c) Steve married Stephanie on February 1 of year 3 and they lived in the home until it has been sold on June of the 5th year, they qualify for gain exclusion since they have owned and used the house for atleast 2 years in 5 years period before the sell as their principle place of residence ,The exclusion available to they is $ 500,000 since they have filed a joint return in year 5 . Therefore the Gain recognised is
the following are the amount steve has to recognise in the given 3 situations
a. $ 85,000
b. $ 335,000
c. $0
PARTICULARS AMOUNT (in $) SALES REVENUE 807,500 LESS : COST OF HOME (472,500) GAIN TO BE REALISED 335,000 LESS : GAIN EXCLUSION AVAILABLE (250,000) GAIN TO BE RECOGNISED 85,000Related Questions
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