Question

43. Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Assume accumulated depreciation on the home is $0 at the time of the sale.)

    1. Sarah used the home as her principal residence through December 31, 2016. She used the home as a vacation home from January 1, 2017, until she sold it on January 1, 2020.

    2. Sarah used the property as a vacation home through December 31, 2016. She then used the home as her principal residence from January 1, 2017, until she sold it on January 1, 2020.

    3. Sarah used the home as a vacation home from January 1, 2008, until January 1, 2019. She used the home as her principal residence from January 1, 2019, until she sold it on January 1, 2020.

    4. Sarah used the home as a vacation home from January 1, 2008, through December 31, 2013. She used the home as her principal residence from January 1, 2014, until she sold it on January 1, 2020.

Answer 1

As per Capital Gains Law in US:

To be Eligible for the 2,50,000$/5,00,000$ exemption on the tax gain, you must have lived in a home for two out of the last five years before selling.

As per Situation 1 : She didnt live 2 out of 5 years so capital gain of 2,00,000$ is taxable.

As per Situation 2: She used to Live from 1st Jan 2017 so it exempts Cpaital Gain.

As per Situation 3: She used to Live for 2 Years So it exempts Capital gains.

As per Situation 4 : She used to Live From 1st Jan 2014 So it exempts Capital gains.