Question

Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Assume accumulated depreciation on the home is $0 at the time of the sale.) (Leave no answer blank. Enter zero if applicable.)

b. Sarah used the property as a vacation home through December 31, 2016. She then used the home as her principal residence from January 1, 2017, until she sold it on January 1, 2020. (Round intermediate percentage computation to 2 decimal places.)

c. Sarah used the home as a vacation home from January 1, 2008, until January 1, 2019. She used the home as her principal residence from January 1, 2019, until she sold it on January 1, 2020.

d. Sarah used the home as a vacation home from January 1, 2008, through December 31, 2013. She used the home as her principal residence from January 1, 2014, until she sold it on January 1, 2020. (Round intermediate percentage computation to 2 decimal places.)

Answer 1

ANSWER

b).

$60000 of gain is excluded and $140000 of gain is recognized. If not for the limitation for non qualified use after December 31,2008, Sarah could have excluded the entire $200000 gain. However because Sarah sold the home after December 31, 2008,she is not eligible to exclude a percentage of the gain that would otherwise be excluded.The percentage of gain thats not excluded is a fraction, the numerator of which is the non qualified use after December 31,2008, and the denominator is the amount of time she owned the property.

In this case $140000 of $200000 gain (70%) is not excludable. The numerator of the disallowance fraction is 7 years of post 2008 non qualified use(Jan 1,2009 to Jan 1,2019). and the denominator is 10 years of ownership(Jan 1,2008 to Jan 1 2020) that is (7/10)= 70%

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