FTax SM_ch15_p001-008

2011 Federal Taxation (with H&R BLOCK At Home(TM) Tax Preparation Software CD-ROM)

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* C HAPTER F IFTEEN * NONTAXABLE EXCHANGES SOLUTIONS TO PROBLEM MATERIALS DISCUSSION QUESTIONS 15-1 This question is relevant because an improvement increases a property’s basis, while a repair is an expense. An expense related to a personal residence is a disallowed personal expense. In the case of a roof, it should be capitalized if it substantially increases the value of the property or substantially extends its life. Otherwise, and more likely, it is a nondeductible expense. (See p. 15-3.) 15-2 The question as to where one’s principal residence is is a question of facts and circumstances. The principal residence would be the one that truly more represents the center of the taxpayer’s activities. In the case presented, the facts seem to indicate that the Milwaukee residence is V’s principal place of residence, even though she may have spent more nights in Chicago. Additional factors to be considered would be the residence of immediate family members, if any, voter registration, driver and vehicle registrations, etc. (See p. 15-3.) 15-3 The taxpayer must have (1) owned the residence and (2) occupied it as his or her principal residence for two of the five years immediately preceding the date of sale. (See p. 15-5.) 15-4 The maximum amount of gain that can be excluded under § 121 is generally $250,000. This amount is increased to $500,000 for a married couple filing jointly if both spouses meet the occupancy test and either spouse meets the ownership test. A reduced maximum applies for taxpayers who fail to meet the two-year tests due to unanticipated events. (See p. 15-5.) 15-5 A loss on the sale of personal use property is generally not deductible. (See p. 15-4.) 15-6 a. Yes. b. After Y uses the property as his principal residence for two years. A partial exclusion is available sooner if the sale is related to unanticipated circumstances. c. No, gain will be taxable to the extent of depreciation claimed after May 6, 1997. Furthermore, the portion of gain allocated to the rental period (only that
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after 2008) before the personal use must be recognized. So moving into the residence for two years before sale will not result in the exclusion of the entire gain. (See pp. 15-10 to 15-12.) 15-7 August 5, 2011. On that date, the two-year test will be met. (See pp. 15-5 to 15-6.) 15-8 Although G would meet the two of five year requirement on December 7, 2009, he will first be eligible for the § 121 exclusion on June 2, 2010 under the one sale every two years rule. (See p. 15-7.) 15-9 a. Yes because the sale is due to unanticipated events. But the maximum exclusion is reduced since she does not meet the two year requirement. b. Assuming S is single, she may exclude $88,542 [$250,000 × 8.5/24]. c.
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FTax SM_ch15_p001-008 - * CHAPTER FIFTEEN * NONTAXABLE...

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