section IRC Essay

Submitted By shahzebsaif
Words: 696
Pages: 3
Open Document
Assignment no 1

Section 121 of the Internal Revenue Code

Section 121 of the Internal Revenue Code provides exclusion to taxpayers from capital gain from sale or exchange of property, which has been owned and used by the taxpayer(s) as his/their primary residence for a period of 2 years or more in the last 5 years, before the sale or exchange of the prior.

However, there are certain limitations to the above-mentioned exclusion. Single taxpayers are limited to a maximum exclusion of $250, 000 while joint taxpayers are limited to a maximum exclusion of $500,000. For spouses that had not been married during the prescribed period but would be filing for joint returns, each spouse would be limited to a maximum exclusion of $250,000, where each spouse would be treated as having owned the property during the stated period. For an unmarried taxpayer, whose spouse is deceased, the taxpayer would be limited to a maximum exclusion of $500,000, if the sale takes place not more than 2 years from his/her death. The exclusion under this section is only applicable for 1 sale or exchange every 2 years, and does not include sales before May 7, 1997.

This section further imposes a limitation on sale or exchange of property, which has been used for non-qualified purposes. “Period of non-qualified use” refers to any period as of January 1, 2009 whereby the property has not been used as the primary residence of taxpayer(s), their spouse or former spouse. However, it does not include the 5 years before the sale or exchange of the property, any period during which the taxpayer(s) were serving on qualified official extended duty or any period of temporary absence due to health, employment or unforeseen circumstances, not exceeding a total period of two years. In such a case, the exclusion will not apply to so much of the capital gain and will be calculated based on the ratio of period of non-qualified stay to the period the property was owned by the taxpayer(s).

On the other hand, taxpayers who have failed to meet the requirements of the exclusion benefit from this section as well. In case the taxpayer(s) is/are unable to meet requirement of primary residence as stated in the first paragraph or taxpayer(s) who are selling or exchanging the property have had more than one sale in the last 2 years then the limitations as stated in paragraph one shall be equal to an amount which is of the same ratio as to the limitation which was to be imposed. The ratio would be calculated based on the period the property was used as a principal residence by the taxpayer(s) during the 5 years before the sale or exchange of the prior, or based on the
Show More

Related Documents: section IRC Essay

Pig Pen Case Summary

IRC §119(b)(1) provides that the fact that ben receives the food at a discounted price and the fact that that ben may accept or decline such meals is not an impediment as to whether he applies for this section. Based on, IRC §119(a) meals are excludable from the employee’s gross income if they are provided for the convenience of the employer, only if the meals…

Words 421 - Pages 2

Partnership Taxation Homework Essay

this transaction qualifies for nonrecognition treatment under IRC section 351. 2. Will either A or B recognize gain or loss on this transaction? (If so, how much? – If gain or loss, please show me the calculation and the citations supporting your conclusions) Answer: For A, since this transaction qualifies for nonrecognition treatment under Section 351 and A received only stocks, A will not recognize any gain or loss. Section 357 (c) provides that when liabilities on the property exceed…

Words 1009 - Pages 5

Abc Mining Company Case Study

Treas. Reg. § 1.011-1 and Treas. Reg. § 1.012-1, giving detailed guidelines for calculating the basis in specific scenarios, further clarify the definitions found in IRC § 1011 and IRC § 1012. Treas. Reg. § 1.1031(a)-1 states the term “like-kind” refers to the nature and character of two properties rather than their quality. If two properties are of the same nature, they are considered to be like-kind, regardless of their…

Words 7170 - Pages 29

Essay ACC565 Week 3 Discussion 1 and Discussion 2

4/17/2014 Section 306 of the IRC was enacted by Congress to prevent tax avoidance by distributing certain stock to a shareholder in a nontaxable stock dividend. Section 306 prevents shareholders from using a preferred stock bailout to convert ordinary income into a capital gain. Analyze the key provisions of Section 306 of the IRC, and outline a tax- planning strategy geared toward redeeming preferred stock with sale or exchange treatment as an alternative to Section 306. Per the text,…

Words 1337 - Pages 6

Corporation Essay

Per IRC 117, to determine whether the gain or loss from the sale of a business is ordinary or a capital gain, Advanced Technologies must first classify each individual asset sold as either (I) capital assets (IRC § 1231 Assets); or (II) property used in trade or business; or (III) Other property (ordinary income assets) such as inventory or stock in trade.7…

Words 2369 - Pages 10

Assignment 5 Essay

June 15, 2015 Dear Mr. Smith: This responds to your field audit notice on my 2014 Individual tax return (Form 1040). In view of the accusations made by the IRS about my client, I would like to bring to your attention that due diligence has been observed in all aspects and my professional code of conduct was set at the highest standard as set forth in Circular 230. There are some accusations in regard to the method used by my client to value foreign currency exchanges. As much as your office…

Words 617 - Pages 3

Diedrich V. Comm Case Study

gift and part sale of the gift property transferred. According to IRC § 61(a)(12), “gross income means all income from whatever source derived, including income from discharge of indebtedness.” Edith should realize gross income because she is required to treat the transaction as part sale therefore generating income of $30,000 (from Joyce) and thus realizing gross income. Additionally, § 2502(c) states that “The tax imposed by section 2501 shall be…

Words 543 - Pages 3

Richard A. Polacsek: The Tax Memo 1981-569

The tax memorandum, Richard A. Polacsek, TC Memo 1981-569, presents a case that is similar to Brad’s. In order for Richard A. Polacsek to strengthen his breathing techniques, it was necessary for him to install a pool in his backyard (in order to take part in daily swims). Henceforth, in 1975, Polacsek installed a pool that was 4 feet deep, 14 feet wide, and 28 feet long with no visible copings or diving boards in its proximity. The final cost of the pool totalled up to $10,516.26, which was $9…

Words 181 - Pages 1

Taxation in the United States and Gross Income Essay

and regulations Internal revenue code is a law enacted by congress-currently Internal revenue Code of 1986, as amended (“IRC”) Regulations are issued by the treasury-the IRS (Permanent, temporary and proposed) Legislative or interpretive-but both are so well thought out that the courts grant deference so they will be hard to overturn in court Tax Law IRC is based on sections Sec 61 gross income Sec 162 business expense Tax treaties are the law Income Tax regulations are preceded with 1. 1…

Words 469 - Pages 2

BOOKS V. COMM Case Summary

in lieu of a credit check. Professor Smith paid the amount for each of his 6 tenants. Is $225 per tenant expense deductible on Dr. Smith tax return? Authority 1. Section 162(a) 2. BROOKS v. COMM., 5 AFTR 2d 451 (274 F.2d 96), (CA9), 12/21/1959 3. FS 2008-23 4. Private Letter Ruling 5407234630A, 07/23/1954, IRC Sec(s).162 Analysis Section 162(a) states a deduction…

Words 691 - Pages 3