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? (Assume accumulated depreciation on the home is $0.)

b. Sarah used the property as a vacation home through December 31, 2016. She then used the home as her principal residence from January 1, 2017, until she sold it on January 1, 2019. (Round intermediate percentage computation to 2 decimal places.)

d. Sarah used the home as a vacation home from January 1, 2008, through December 31, 2012. She used the home as her principal residence from January 1, 2013, until she sold it on January 1, 2018.

Answer 1

b Answer :- $60000 of gain is excluded and $140000 of gain is recognised. If not for the limitation for non-qualified use after December 31, 2008 Sarah could have excluded the entire $200,000 gain. However, because Sarah sold the home after December 31, 2008 ans she had non-qualified use after December 31, 2008, she is not allowed to excrude 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 non-qualified use after December 31, 2008 and the denominator is the amount of time she owned the property. In case $82360 of the $200,000 gain (70%) is not exclude bless. The numerator of the disallow able fraction is 7 years of post 2008 non-qualifying use (January 1, 2009 through December 31, 2015) and the denominator is 10 years of ownership (January 1, 2008 through January 1, 2018). 7/10 = 0.7×100 = 70%

d Answer :- $133,333 of gain is excluded and $66667 of gain is recognised. If not for the limitation for non-qualified use after December 31, 2008 Sarah could havery excluded the entire $200,000 gain. However, because Sarah sold the home after December 31, 2008, 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 non-qualified use after December 31, 2008 and the denominator is the amount of time she owned the property. In case $66667 of the $200,000 gain (33.34%) is not exclude bless. The numerator of the disallowance fraction is 3 years of past 2008 non-qualified use (January 1 2009 through December 31, 2011) and the denominator is 9 years of ownership (January 1, 2008 through January 1, 2017) 3/9 = 33.34%