1929 chapter 15 property transactions nontaxable

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Chapter 15 / Exercise 1
ECON MICRO
McEachern
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1929. CHAPTER 15 PROPERTY TRANSACTIONS: NONTAXABLE EXCHANGES Questi138 Melissa, age 58, marries Arnold, age 50, on June 1, 2011. Melissa decides to sell her principal residence on August 1, 2011, which she has owned and occupied for the past 30 years. Arnold has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the sale of her residence in January 2009 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Arnold’s gambling debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return? Correct Answer: Melissa is eligible for a maximum § 121 exclusion of $250,000. Even if Melissa and Arnold file a joint return, the maximum § 121 exclusion still is $250,000. To increase the § 121 maximum exclusion amount from $250,000 to $500,000 on a joint return, Arnold would need to be eligible for the § 121 exclusion. He is ineligible on Melissa’s sale of her residence because he has not occupied the residence for at least two years. 1930. CHAPTER 15 PROPERTY TRANSACTIONS: NONTAXABLE EXCHANGES Questi139 Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence? Correct Answer: The relief provision which permits partial § 121 exclusion treatment is available in any of the following situations: · Change in place of employment. · Health. · To the extent provided for in the Regulations, other unforeseen circumstances. 1931. CHAPTER 15 PROPERTY TRANSACTIONS: NONTAXABLE EXCHANGES Questi140 Taxpayer’s principal residence is destroyed by a tornado. Taxpayer is single and his realized gain is $400,000. Is it possible for the taxpayer’s recognized gain to be $0?
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ECON MICRO
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Chapter 15 / Exercise 1
ECON MICRO
McEachern
Expert Verified
Correct Answer: Yes, it is possible for the taxpayer’s recognized gain to be $0. This can be achieved by using § 1033 in conjunction with § 121. To achieve the desired result, § 1033 postponement treatment needs to be elected and the taxpayer must invest in another principal residence with an amount at least equal to the amount realized reduced by the § 121 exclusion amount. 1932. CHAPTER 15 PROPERTY TRANSACTIONS: NONTAXABLE EXCHANGES Questi141 Sam sells land with an adjusted basis of $35,000 and a fair market value of $50,000 to Cynthia, his wife, for $50,000. Discuss how the tax consequences would differ if Sam and Cynthia had never been married. Correct Answer: Section 1041 provides that realized gains or losses on transfers of property between spouses are not recognized. Thus, none of Sam’s realized gain of $15,000 ($50,000 amount realized – $35,000 adjusted basis) is recognized. Even though Cynthia paid $50,000 for the land, her basis is a carryover basis of $35,000.

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