Cape Cod Case Study Memo
May 8, 2018
To: Mr. Ricky Ricardo and Mrs. Lucy Ricardo
From: Ernst & Young, LLP
Facts
Mr. and Mrs. Ricardo owns a vacation home in Cape Cod. They used the vacation home during the summer and rent the property to a family friend for 10 days out of the year. They only reported their property taxes and qualified residence interest on Schedule A on their tax return. They purchased it 20 years ago for $250,000, spend $100,000 in renovation, and wants to exchange this property for vacation home in Miami Beach. The Cape Cod vacation home have been appraised for $850,000.
Issues
1. Determine whether the gain from sale/exchange of Cape Cod vacation home may be deferred due to like-kind exchange.
2. Does the Cape Cod vacation home qualify as …show more content…
The Ricardo’s home in Cape Code does not qualify as a rental property, as they have not met all the requirements, and therefore cannot deferred the gain of the sale or exchanged of property in Miami Beach.
According to the tax court case, Barry E. Moore and Deborah E. Moore v. Commissioner., U.S. Tax Court, CCH Dec. 56,950 (M), T.C. Memo. 2007-134, 93 T.C.M. 1275, the taxpayer were not allow to defer the gain from the exchanged of their vacation home due to code section 1031. Their vacation home was primarily used by the family as a retreat. The vacation home were not rented out or claim deprecation or investment expense on their tax return. Hence, the Moore had to recognize the gain from the exchange of the property.
Based on Rev. Proc. 2008-16, the qualified exchanged property must meet the following conditions: 1.) Tax payer has to own the property for 24 months. 2.) Property must be rent out to another person for more than 14 days within a 12 month period. 3.) Personal use is limited to less than 14 days per year. The Ricardo did not meet any of these requirements, hence, they will recognized the gain if they sell the vacation home in Cape
To: Mr. Ricky Ricardo and Mrs. Lucy Ricardo
From: Ernst & Young, LLP
Facts
Mr. and Mrs. Ricardo owns a vacation home in Cape Cod. They used the vacation home during the summer and rent the property to a family friend for 10 days out of the year. They only reported their property taxes and qualified residence interest on Schedule A on their tax return. They purchased it 20 years ago for $250,000, spend $100,000 in renovation, and wants to exchange this property for vacation home in Miami Beach. The Cape Cod vacation home have been appraised for $850,000.
Issues
1. Determine whether the gain from sale/exchange of Cape Cod vacation home may be deferred due to like-kind exchange.
2. Does the Cape Cod vacation home qualify as …show more content…
The Ricardo’s home in Cape Code does not qualify as a rental property, as they have not met all the requirements, and therefore cannot deferred the gain of the sale or exchanged of property in Miami Beach.
According to the tax court case, Barry E. Moore and Deborah E. Moore v. Commissioner., U.S. Tax Court, CCH Dec. 56,950 (M), T.C. Memo. 2007-134, 93 T.C.M. 1275, the taxpayer were not allow to defer the gain from the exchanged of their vacation home due to code section 1031. Their vacation home was primarily used by the family as a retreat. The vacation home were not rented out or claim deprecation or investment expense on their tax return. Hence, the Moore had to recognize the gain from the exchange of the property.
Based on Rev. Proc. 2008-16, the qualified exchanged property must meet the following conditions: 1.) Tax payer has to own the property for 24 months. 2.) Property must be rent out to another person for more than 14 days within a 12 month period. 3.) Personal use is limited to less than 14 days per year. The Ricardo did not meet any of these requirements, hence, they will recognized the gain if they sell the vacation home in Cape