Question

Sue, a single taxpayer, purchased a principal residence in 2005 for $300,000.  That was her only home for 10 years. In 2015, she sold the house for $336,000. She paid real estate commissions of  $5,000 to get the property sold.

How much gain must she recognize on her 2015 Federal income tax return for this sale?

		$0
		$5,000
		$36,000
		$31,000 John suffered two losses during 2015: his uninsured laptop computer was stolen, and his home was damaged by vandals. His stolen laptop was worth $1,000 although he had originally paid $1,500 for it. The vandals caused $7,000 damage to his home and his insurance policy did not cover damage from vandalism. John has an adjusted gross income of $44,000 in 2015 What amount of deductible loss does John have from these events? Hint: Review page 556-557 in the book. $7,600 $4,200 $3,400 $7,800 The federal income tax system provides an incentive for individual taxpayers to meet their housing needs by borrowing money to purchase a home instead of renting a home. True False

Answer 1

Use Test: Sue has lived in the house for atleast 2 years in 5 years immediately preceeding the sale of house.

Ownership test: Again she has owned the house for atleast 2 years in the same 5 years immediately preceeding the sale of house.

Hence Sue meets both ownership test and use test and hence qualifies for exclusion (upto $250,000 of the gain) of income out of sale of main home.

Hence Sue will not recognise any gain out of sale of house, since the same is less than the exclusion amount of $250,000

Answer = 0

The deduction for loss which can be claimed will be computed in accordance with the provisions. Computation is provided below:

Particulars	Loss due to vandalism $	Laptop theft $	Total $
Amount of Loss /Decrease in FMV	7000	1000	8000
Less: $100 Reduction per loss event	-100	-100	-200
Less: 10% of Adjusted Gross income			-4400	=10% of 44000
Loss admissible for deduction			3400

Answer = $3400

Answer would be True since the Federal income tax system provides many benefits for individual tax payers who meet their housing needs by buying a home on loan instead of taking it on rent. The beenfits are as follows:

1. Deduction of interest paid on home mortgage

2. Deduction of property taxes paid

3. Imputed rent is not taxed. Imputed rent is the amount of rent you pay to yourself being the home owner and tenant (dual role)

4. Exclusion from profit on sale of house upto $250,000 - on meeting certain criteria

Hence Answer is True