Question

Daniel, a single taxpayer, was given a house by his parents several years ago. He has used the home as his principal residence since it was given to him. Daniel's basis in the home was only $65,000. Due to the expansion of the city, he was able to sell the house for $320,000. How will this transaction be treated for tax purposes?

Answer 1

Answer:

The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain

Explanation:

Gain on the house = $320,000 - $65,000 = $255,000

When an individual has a capital gain from the sale of his/her main home, that person may qualify to exclude up to $250,000 of that gain from his/her income, if he/she is single. But if for spouses, they can exclude up to $500,000 of that gain if they a joint return.

However, in order to qualify for the $250,000/$500,000 home sale exclusion, the person(s) involved must own and occupy the home as their principal residence for at least two years before they decide to sell it.

From the explanation above, we can conclude that; since Daniel is a single taxpayer, and he owns a house which he has used as his principal residence for several years, then he is qualified to exclude the first $250,000 from the gain of $255,000, and the remaining $5,000 will be treated as a long-term capital gain.

Answer 2

Answer:The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain

Explanation:

A principal residence is the primary location that a person inhabts .

taxpayers must file taxes on capital gains from the sale of any property.

Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price

A Principal Residence tax Is Determined by :

1)When they sell their home of primary residence, they could qualify for an exclusion of a $250,000 or ($500,000 if married filing jointly) gain if they meet the following requirements according to the IRS (2017):

2) Ownership of the home and used it as their primary residence in at least two of the five years preceding the sale of the property.

3)They did not acquire the home through a like-kind exchange in the past five years.

They did not exclude the gain from the sale of another home two years prior to the sale of this home.

So Daniel made 255 ,000 dollars from the sale of the property that is 320,000-65,000

If he qualifies for exclusion then the $250,000 will be excluded and he the remaining $5,000 will be treated as long term capital gain i.e tax on assets held for more than one year .