ch 9-11 tax accounting
Chapters 9-11 Review Questions
Chapter 11
1. Describe the current tax law for sale of residence. Married taxpayers may exclude up to $500,000 of gain upon the sale of their residence and single taxpayers may exclude up to $250,000 of their gain. Taxpayers must own and occupied the residence for two out of the last five years prior to the sale. The exclusion applies to only one sale or exchange every two years.
2. Why might a taxpayer wish to elect out of the new exclusion on the sale of residence? Taxpayers who plan to sell within two years two properties that meet the exclusion eligibility requirements and who first sell the property with the lesser gain may choose to elect out of the exclusion to reserve its use for the second sale where the gain is larger.
3. Is it possible to differed gain through the purchase of a new residence? No, the exclusion is [permanent, there for no reinvestment is required.
4. Why would the exclusion on sale of resident be prorated? It can be prorated if the sale id due to a change in place of employment, a change in health, or unforeseen circumstances, even if a taxpayer does not meet the ownership usage, or sale within two years requirement.
5. What special rules affect three types of taxpayers?
a. Widowed taxpayers the mortgage forgiveness debt relief act of 2007 allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale of a principal residence owned jointly with a deceased spouse if the sale occurs within two years of the death of the spouse and other ownership and use requirement have been met.
b. Divorce taxpayers the time during which the taxpayers spouse or former spouse owned the residence is added to the taxpayers period of ownership
c. Incapacitated taxpayers if a taxpayer becomes physically or mentally incapable of self-care, the taxpayer is deemed to use a residence as a principal residence during the time in which the taxpayer owns the residence and resides in a care
Chapter 11
1. Describe the current tax law for sale of residence. Married taxpayers may exclude up to $500,000 of gain upon the sale of their residence and single taxpayers may exclude up to $250,000 of their gain. Taxpayers must own and occupied the residence for two out of the last five years prior to the sale. The exclusion applies to only one sale or exchange every two years.
2. Why might a taxpayer wish to elect out of the new exclusion on the sale of residence? Taxpayers who plan to sell within two years two properties that meet the exclusion eligibility requirements and who first sell the property with the lesser gain may choose to elect out of the exclusion to reserve its use for the second sale where the gain is larger.
3. Is it possible to differed gain through the purchase of a new residence? No, the exclusion is [permanent, there for no reinvestment is required.
4. Why would the exclusion on sale of resident be prorated? It can be prorated if the sale id due to a change in place of employment, a change in health, or unforeseen circumstances, even if a taxpayer does not meet the ownership usage, or sale within two years requirement.
5. What special rules affect three types of taxpayers?
a. Widowed taxpayers the mortgage forgiveness debt relief act of 2007 allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale of a principal residence owned jointly with a deceased spouse if the sale occurs within two years of the death of the spouse and other ownership and use requirement have been met.
b. Divorce taxpayers the time during which the taxpayers spouse or former spouse owned the residence is added to the taxpayers period of ownership
c. Incapacitated taxpayers if a taxpayer becomes physically or mentally incapable of self-care, the taxpayer is deemed to use a residence as a principal residence during the time in which the taxpayer owns the residence and resides in a care