Question

Maggie’s aunt died in 2001 leaving her a home which has been the principal residence of Maggie and her husband ever since.  Her aunt acquired the property in 1980 at a cost of $90,000.  She (the aunt) made capital improvements over the years totaling $25,000.   The property had a fair market value at the aunt’s death of $250,000.   In 2003, Maggie and her husband added a tennis court (cost $25,000) and paid a city assessment for the installation of sidewalks on their street of $5,000. They sold the home in 2018 for an adjusted sales price of $800,000, and immediately purchased a new home at a cost of $600,000.  Maggie and her husband file a joint return.  Please identify, discuss, and resolve all tax issues associated with the acquisition and sale of both the home they inherited from Maggie’s aunt, and the purchase of the new home, including an analysis of the basis of their new home.

Answer 1

solution :

As the benefit is held for over three years the equivalent is the long haul capital gain.

Calculation of Long term capital increases:

Full estimation of thought =$ 800,000

Less : Expenditure brought about regarding deal = 0

Less:Indexed cost of aquisition = $ 400,000

Less: Indexed cost of Improvement = $ 55,205

Net Long term Capital Gain = $ 344,795

Less : Exemptions = $ 600,000

Net Long term Capital gain = ( $ 255,205 )

Working Notes :

1. Here Full estimation of thought is $ 800,000

2. Estimation of Indexed cost of aquisition:

We are thinking about Fair Market Value of the benefit amid close relative's passing as the expense of securing as there are no subtleties of year amid which capital enhancements were done to the advantage.

Subsequently, cost of acquition is $200,000

Ordered expense of acquition is = Cost of acquitioncost swelling list in the time of offer/cost expansion record in the time of acquition

= $200,000852/426= $400,000

3. Estimation of Indexed cost of Improvement : cost of improvement*cost expansion record in the time of offer/cost swelling list in the time of Improvement

= ($ 25,000+$ 5000 ) * 852/463 = $ 55205

4. Exceptions:

As maggie and her Husband bought new home quickly i.e inside 2 years from the date of offer of old property.They can guarantee exemtion

So Cost of new Home is $ 600,000 exempted

5. Incase a misfortune emerges on the offer of benefit ,the capital misfortune can be set off against capital gain in that year.Or It can be conveyed forward to the following 8 years and can be set off later on years. Anyway misfortune can be just be conveyed forward if the arrival was documented before the due date.

In the above case loss of $ 255,205 can be set off in the previously mentioned way