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Homework answers / question archive / Ann has just moved to California from Tennessee
Ann has just moved to California from Tennessee. You notice that she sold her home in Tennessee eight months after moving to California. She had owned the home for a little over three years. She rented the home after moving. Originally, she had planned to keep the home and rent it forever. Once she got over the sticker shock of California real estate she sold the home so she could afford to purchase a new home in California.
Michelle has just moved to California from Maine. She sold her home and relocated after the company she worked for closed their chilly office in Maine and opened a new office on the beach in sunny California. She lived in the home for 18 months before relocating and sold it three months after moving. The home was vacant after she moved. She has not purchased a new home but plans to soon.
Gayle has just moved to California from Nevada. It seems that in the short time that she lived in Nevada she had developed an unhealthy affinity to the blackjack table. She owned a home in Nevada for six months before selling it and moving. She will not purchase a new home for at least several years (until after the casinos are paid off).
Assume that the gain on the sale of each home is $500,000. Discuss the proper tax treatment on the sale of each home. How much, if any, of the gain is taxable? Why? Please clearly state in assumptions that you make.
Ann can temporarily rent out the TN home without losing her exclusion under Sec 121. She passed the 2 out of 5 year rule and can exclude $250,000 of gain as a single person. She will report and pay tax on the remaining $250,000.
Michelle meets one of the exceptions to the two year rule because of an employer-related move. She must, however, allocate her gain as follows: if single, she can exclude 18/24 or 75% of $250,000, or $187,500. The balance of $312,500 is taxable.
Gayle with the gambling problem may have an out. Health is an issue which can be considered in calculating the amount of gain taxable. Health had to have been the primary reason for the sale, if she moved "to obtain, provide or facilitate the diagnosis, cure, mitigation, or treatment of disease..." A doctor's recommendation would be required to meet the exception to the rule. Based on what we know, she doesn't qualify for the exclusion. All $500,000 would be taxable.
