Answer:
Person T has rented home for the period of 1st January 2007 to 31st December 2011 for principal purpose. Person T used the home for living from the date 1st January 2012 to 31st December 2012. From 1st January 2013 to 31st December 2013. T rented premises. Afterward. Person T used the home for living from the date 1st January 2014 to 31st December 2012. Accumulated depreciation on the same is SO.
1st January 2007 to 31st December 2011- Rented for 5 years
1st January 2012 to 31st December 2012 — Principal resident for 1 year 1st January 2013 to 31st December 2013- Rented for 1 year
1st January 2013 to 31st December 2016 — Principal resident for 4 years
Person T is successful in criteria of user test and ownership tests. As Person T has used the home for a minimum two years out of the last five years from the date of sale. Person T has used home for the principal residence for 5 years and 6 years as a rented resident. Hence allowance of gain should be in proportion basis.
Calculation of percentage of gain for which Person T is eligible for an exemption from paying tax:
Exemption = (Principal residence year/Total no.of years) × 100
Exemption = (5/11) × 100
Exemption = 45.45%
Hence, 45.45% is exempted from tax.
Calculation of amount for which Person T is eligible for an exemption from paying tax
Exempted amount = Tax Exemption x Capital gain
= 45.45% × $20,000
= $9,090
Hence, the eligible amount of exemption is $9,090.
Calculation of amount for Person T is not eligible for an exception from paying tax
Not exempted amount = Total profit - Exempted amount
Not exempted amount = $20,000 - $9,090
Not exempted amount = $10,910
Hence. Person T can claim exemption of capital gain for $9.090 from her total taxable income.
