Question

1. In which of the following would the gain on selling their personal residence would be taxable for federal income tax purposes?

a) After living in his house for 6 years, Fred sold his home

b) After living in her house for 15 months, Gina sold it to move to a nursing home

c) After living in his house for 1 year, Sean sold it because he was relocated by his employer

d) After living in her house for 1 year, Mary sold it

2. Individual taxpayers are not taxed on their cancellation of debt (COD) income if their debt was forgiven as part of bankruptcy proceedings

True or False?

3. In order to promote investment in local government projects, interest earned on municipal bonds are not taxable.

True or False?

Answer 1

a) if you sell the house after 24 months you have to pay an LTCG tax, which is charged at 20% with indexation benefits. This one is applicable to Fred.

b) tax charged on amount of sale is depend on the income slab rate. Benefit of indexation is not available for short term capital gains.

C) HOUSE sold with in 24 moths such amount will be taxable as per income tax slab rate

d) house sold with in one year applicable tax rate on amount of sold property subject to income tax slab rate. Whatever the reason for sale.

2) generally when a taxpayer borrows money but the debt is eventually cancelled or forgiven the tax payer recognize income in the amount of cancelled debt. However under sec 108 of the internal revenue code and associated regulations exceptions apply. Debt relief can be achieved through direct negotiations, debt relief programs, or bankruptcy. Canceled debt must be reported as a taxable income and filed through form 1099 c. If the canceled amount is 600$ or more then the individual is required to file with ITS the given statement is wrong

3)income from investing in municipal bonds is generally exempt from federal and state taxes for residents of the issuing state. While the interest income is tax exempt for any capital gains distributed are taxable to the investor. Income for some investors may be subject to the federal alternative minimum tax