Question

1. ) In October of 2017, Tommy and Tammy, husband and wife, sold for $940,000 their (only) residence that they had purchased in 1999 for $400,000 paying $300,000 in cash with a $100,000 mortgage from ABC Bank. They lived there the entire time they owned the home, and they made repairs to the electric and plumbing during their 10-year ownership totaling $40,000. What, if any, is their recognized gain or loss to be included on their jointly filed Form 1040 for 2017?

a.             $400,000

b.             $0

c.             $500,000

d.             $40,000

e.             None of the above is correct

2.          Gain, in certain cases, may be treated as capital gain in which of the following situations?

a.             Upon recognition of a nonbusiness bad debt

b.             Upon the sale of inventory

c.             On the sale of Section 1231 property

d.             In none of the above situations

Answer 1

1.

The gain on sale of tax payer's personal residence is subject to a 250,000 exclusion from gross income. (500,000 for married filing jointly). Excess gain over the applicable limit is taxable.

Personal residence - Owned as used the home as principal residence for atleast 2 of the previous 5 years.

Gain = 940,000 - (400,000+40,000)

= 500,000

No gain will be recognized as are filing jointly.

The answer is B.

2.

Section 1231 assets are the assets comprising principally of personal and real property used in trade or business and held for over 12 months whose eventual sale or disposal is only incidential to the business.

Gains on sale of Section 1231 assets are treated as Capital gains and losses are treated as Ordinary losses.

The answer is C.