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CHAPTER 15—NONTAXABLE EXCHANGES TRUE/FALSE 1. A taxpayer is able to use § 121 even if he or she temporarily rents his or her primary residence while trying to sell it. ANS: T The residence needs to be the taxpayer's principal residence for two of the five years preceding the sale. Even the rental or nonqualified use exception does not apply if the taxpayers does not move back in to the residence. PTS: 1 REF: pp. 15-5, 15-11 to 15-13, and § 121 2. B purchased a residence on April 12, 20X1 for $120,000. B moved in immediately and lived in the home until it sold for $165,000 on March 25, 20X4. B may exclude all of the gain even though the home was not owned for five years. ANS: T All that is required is that B have lived in and owned the home for two years (within the five years pre- ceding the date of sale). PTS: 1 REF: p. 15-5 3. A loss on the sale of a principal residence may be deducted in the year of sale as a capital loss. ANS: F Losses on the sale of personal use property are not deductible. PTS: 1 REF: p. 15-4 and § 165(c) 4. C purchased a mobile home for $78,000 for use as her residence on June 12, 20X1. She moved in im- mediately. On June 12, 20X2, C was transferred to a new job. She rented the mobile home for six months before she sold it for $108,000. C may exclude $15,000 (i.e., $30,000 gain x 1 year / 2 years). ANS: F False on two counts. C may exclude her entire gain. The maximum excludable is $125,000 (i.e., $250,000 x 1 year / 2 years). However, C must recapture depreciation to the extent allowed or allow- able. PTS: 1 REF: pp. 15-6 and 15-10 to 15-11 5. K currently owns two residences. She lived in the first from January 1, 20X1 until June 30, 20X4.She lived in the second from July 1, 20X4 until June 30, 20X6. Both residences have been owned since January 1, 20X1 and were either rented or vacant when not occupied by K. K can sell both residences on June 30, 20X6 and exclude her entire gain. ANS: F Even though both residences otherwise qualify, only one qualifying sale can be made every two years. PTS: 1 REF: p. 15-7 and § 121(b)(3)
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6. J and H sold their jointly owned residence at a $325,000 gain during the current year. J owned the res- idence for four years and lived in it the entire time. After their wedding, J transferred a one-half in- terest to H, who immediately moved in and lived in the home for 18 months. J and H can exclude only $250,000 of their gain. ANS: T To qualify for the $500,000 exclusion, both spouses must have used the residence for two years as their principal residence. However, since J meets both the ownership and use tests, the $250,000 exclu- sion applies. PTS: 1 REF: p. 15-6 7. If a husband and wife divorce and their jointly owned residence is transferred to one spouse six months after the divorce, no gain or loss is recognized. ANS: T
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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