Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually

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.)

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. (zero)

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.   (?????) the answer is not $93,333

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. ($200,000)

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. (??????) (zero is not the answer)

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.)

Explanation / Answer

a.

$0 gain 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 last five years, so she can exclude her gain up to $250,000.  The limitation does not apply to her because she did not live in the home at the time she sold it.

b.

$100,000 gain recognized.

If not for the limitation for nonqualified use after December 31, 2009, Sarah could have excluded the entire $200,000 gain.  However,because Sarah sold the home after December 31, 2009, she lived in it when she sold it, and she used it for purposes other than as a principal residence after December 31,

2009, she is not allowed to exclude a percentage of the gain that would otherwise be excluded.  The percentage of the gain that is not excluded is a fraction, the numerator of which is the nonqualified use after December 31, 2009, and the denominator is the amount of time she owned the property.  In this case, $100,000 of the $200,000 gain (50%) is not excludable.  The numerator of the disallowance fraction is 4 years of post 2009 nonqualified use (January 1, 2010 through January 1, 2014) and the denominator is 8 years of ownership (January 1, 2008 through January 1, 2016)

(4/8 = 50%).  

c.

$200,000 gain recognized.

While Sarah meets the ownership test, she does not meet the use test because she used the property as her principal residence for less than two of the last five years.

d.

$0

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 last five years, so she can exclude her gain up to$250,000.

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