Question

Mr. and Mrs. Kilo, married filing jointly, purchased their first home in 2003 for $240,000. They sold this home in 2007 for $210,000. They purchased their second home in 2008 for $435,000 and sold it this year for $1,150,000.

a) Did the Kilos recognize a deductible loss on the 2007 sale of their first home?

b) Compute the income tax and Medicare contribution tax on the Kilos’ gain on the sale of their home this year if their preferential rate on long-term capital gain is 20 percent.

Answer 1

a.) IRS does not allows deduction of Capital Loss on personal property such as home or car.

In 2203, Mr and Mrs Kilo purchased their first home which will fall within the definition of personal property. The capital loss of $30000 on sale in year 2007 would not be recognized as a deductible loss.

b.) Long Term Capital Gain = $1150000-$435000 = $715000

Income Tax(20%) = $715000*20% = $143000

Medicare Contribution Tax(3.8%) is levied after Section 121 exclusion of $500,000 for Married Couples filing jointly on Capital Gain on their Residential Property.

Medicare Contribution Tax = ($715000-$500000) * 3.8% = $8170