Question

T/F

16. If the business portion of a principal residence is conducted in a separate structure, the sale should be treated as a sale of two assets (the residence and the portion of the property used as a business) and the Sec. 121 exclusion only applies to the residence portion of the property.

17. If a taxpayer uses more than one property as a residence during the year, the property designated as the principal residence by the taxpayer will be considered the principal residence for exclusion purposes, regardless of other facts and circumstances.

18. Net Sec. 1231 losses previously deducted as ordinary losses are recaptured by changing what would otherwise be ordinary income into LTCG.

Answer 1

16. True

Explanation: if the taxpayer uses a portion of the residence as a home office, workshop or storage area. The IRS takes the position that the Section 121 exclusion is not available for any portion of the residence used for business purposes during the qualifying use period

17. True

Explanation: The housing unit representing the taxpayer’s principal residence generally must be inhabited by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child. A taxpayer can designate only one property as his or her principal residence for a particular tax year.

18. False

Explanation: f you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules. Do not take that gain into account as section 1231 gain.