Question

You are asked to write a memo to your client, Mr. Carter regarding his tax question.

● Your paper should not be more than 2-3 pages, double spaced ● The format should be as follows:

○ Restate the issue / question (first paragraph)

○ Explain the facts in relation to your research (middle paragraphs)

■ Cite a primary or authoritative material at least once ■ Refer the the tax form the information would be reported on

■ Include calculations and explanations

○ Give the client your final conclusion and recommendations (last paragraph)

Mr. Carter plans on selling his house located in Virginia in 2018. He wants to know if he will be taxed on the gain of the sale. He is especially concerned because he had heard there may be a tax issue since he did not live in the house for a period of time. Please make sure you address this concern.

a) Mr. Carter believes the home will sell for at least $560,000.

b) He purchased the home in 1995 for $210,000.

c) Mr. Carter is not married, and files “single.”

d) In 2008, an addition was put on the house that cost $85,000.

e) From January 15, 2015 March 15, 2016, he moved in with his mother to care for her until she moved to a nursing home.

f) He moved to his Florida condo on November 1, 2017 and is now a resident of Florida.

g) He rented the home to his niece from January 2015 until he moved back home in March 2016. The income and expenses were reported on the Schedule E.

Answer 1

Mr. Carter plans on selling his house located in Virginia in 2018. As it is only residential property Mr. Carter has it will be taxation as capital Gain on sale of primary Residence. Also in accordance with Virginia Capita gain taxation and exclusion rule he will get deductions under section 121 if he qualified for it.

Under section 121, of internal revenue code, exclusion of tax on sale of primary residence a person qualified for exclusion if it satisfied following conditions (Services, 2017) –

Section requirement	Mr. carter status	Remark
The house being used for residential purpose for 2 out of 5 years from the time of sale	Sale year 2018 Reside in house – 2013 -2015	Qualify
The house being own for 2/5 year from date of sale	Own the house from 1995	Qualify
Not used section 121 for exclusion of any other property	Yes	Qualify
Married , then total exclusion of $500,000	Not	Not Qualify
Total exclusion	$250,000	Qualify

Calculation of capital gain from sale of Primary residence for Mr. Carter

Particular	Calculations	Amount
Sale consideration		$560,000
Less Cost of house Addition Total	$210,000 $85,000	$(295,000)
Net		$265,000
Exclusion u/s 121		(250,000)
Net Capital gain		$15,000

As in come from renting of house property is taxable under schedule E and it is duly taxed it will not be included here. Therefore Mr. Carter has to pay Capital gain tax of $ 15,000to the Authority under schedule D Form 1040.

References

Services, I.r., 2017. Publication of house property. Capital Gain , 1(2), p.32.