Question

1. Steve and Stephanie Pratt purchased a home in Spokane, Washington for $400,000. They moved into the home on February 1, of year 1. They lived in the home as their primary residence until October 1 of year 1 when they sold the home for $610,000. Assume the Pratts sell the home because Stephanie's employer transfers her to an office in Utah. How much gain will the Pratts recognize on their home sale?

2. Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $790,000. Sarah used the property as a vacation home through December 31, 2014. She then used the home as her principal residence from January 1, 2015 until she sold it on January 1, 2017.What amount of the gain on the sale does Sarah recognize?

Answer 1

Answer :-

1)

In this given case capital gain shll be $ 2,10,000.00. The deduction of $ 5,00,000.00 shall not be available because the primary condition to take such benefit is to hold such house for at least 2 years out of last 5 years. In the given case Steve and Stephanie Pratt purchase House on 1st February and sold the same on 1st October in the same year. Thus they did not fullfill the conditions for get exemptions from the Capital Gain.

Capital Gain shall be :-

Sale consideration 6,10,000.00

Less:- Purchase Cost 4,00,000.00

Taxable Capital Gain 2,10,000.00

2)

In this case Sarah (Single) purchase house on 1st January 2008 and did not use for continuous five years. She started use the house as vacation home through 1st December 2014.There after from 1st January 2015 to 1st January 2017 she used the house as a principal residence. As per the law Assessee must use the house as a primary residence for at least 2 years out of 5 years before sale the property to take the benefits of 121. So in the given case she is eligible to take benefits of 121 exclusion and the Capital Gain shall not be taxable upto the amount of $ 2,50,000.00.

Capital Gain shall be :-

Sale consideration 7,90,000.00

Less:- Purchase Cost 6,00,000.00

Total Capital Gain 1,90,000.00

Exclusion of 121 1,90,000.00

Taxable capital gain NIL