Explanation The taxpayers can always exclude up to $250,000 of their gain from sale of residence. The excess of gain above this amount is subject to tax at preferential rates at it is a long-term capital gain . The ownership test requires the taxpayer to own the property for at least two years within the period of five years before the sale of the property. The use test requires the taxpayer to use the property for at least two years within the period of five years before the sale of the property. The tax law limits each of the taxpayer to one exclusion for every two years. For a married couple filing joint returns are eligible up to $500,000 exclusion if the either one of them satisfies the ownership or use test. However, if the exclusion is used on the sale of another house is availed by any of the spouse, the available exclusion gets reduced to $250,000. Situation 1: The amount of $100,000 must be included in the gross income. Particulars Amount Selling price of the house $750,000 Cost price of the house $150,000 Proceeds from the sale $600,000 Less: Exemption allowed $500,000 Gross income from the sale $100,000 Table (1) Situation 2: The amount of $150,000 must be included in the gross income; as they do not satisfy the ownership test and use test to avail the exemption...

11th Edition

ISBN: 9781264012619

Author: SPILKER

Publisher: MCG

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Chapter 5, Problem 71P

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Ascertain the taxable amount to be included in gross income under the given circumstances.

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Chapter 5, Problem 70P

Chapter 5, Problem 72P

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Chapter 5 Solutions

TAXATION OF INDIV.+BUS. ENTITIES 2020 L

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Ascertain the taxable amount to be included in gross income under the given circumstances.

Solution Summary: The author explains that taxpayers can exclude up to 250,000 of their gain from sale of residence. The ownership test requires the taxpayer to own the property for at least two years before the sale.

Ascertain the taxable amount to be included in gross income under the given circumstances.

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Chapter 5 Solutions