Understanding Tax Implications: Gain on Sale of Primary Residence

School: Boise State University - Course: ACC 330 - Subject: Accounting

ACC 330 Module Two Adjusted Gross Income Assignment Template Instructions 1.Select a case from the Module Two Adjusted Gross Income List found in the Supporting Materials section of the Module Two Adjusted Gross Income Assignment Guidelines and Rubric. 2.Research the topic using the Tax Research Guide found in the Supporting Materials section of the Module Two Adjusted Gross Income Assignment Guidelines and Rubric. 3.Document your specific findings below (briefly). 4.Describe specific examples of how and when the criteria apply or do not apply to AGI. 5.Complete your template as a 1- to 3-page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. 6.Cite all sources according to APA style. Research Topic [Topic Name/Description] A married couple has sold their primary residence and needs to determine if they must report a taxable gain. (Gain on sale of personal residence - Sec 121.) Primary Sources 26 USC 121: Exclusion of gain from sale of principal residence USC Parameters Cornell Law School determines that so long as the married couple has reported that residence as their primary residence for two of the last five years as of the date of sale, the couple is not required to report any capital gains on the sale of the home (Cornell Law School, n.d.). Furthermore, the excluded gain cannot exceed $250,000 for individual filers and $500,000 for joint filers, and no more than one capital gain is reported in this manner once every two years (U.S. House of Representatives, n.d.). Finally, the term "property" applies to, but not limited to, "a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2))" (Cornell Law School, n.d.). Example of Applying AGI

"In 1998 Taxpayer D buys a house and 1 acre that he uses as his principal residence. In 1999 D buys 29 acres adjacent to his house and uses the vacant land as part of his principal residence. In 2003 D sells the house and 1 acre and the 29 acres in 2 separate transactions. D sells the house and 1 acre at a loss of $25,000. D realizes $270,000 of gain from the sale of the 29 acres. D may exclude the $245,000 gain from the 2 sales: (Cornell Law School, n.d.).