Assumeyou are a CPA and a client has asked you to clarify the tax impact of her

Question

Assumeyou are a CPA and a client has asked you to clarify the tax impact of her selling her home. she would like the full details regarding the tax rules. prepare a client letter to answer her question: assume you are a CPA and a client has asked you to clarify the tax impact of her selling her home. She would like full details regarding the Tax rules. You are to prepae a client letter to her in answer to her question. Susan Smart, is employed by Apple computer. Her salary for 2015 was $60,000 and she had $10,000 interest income. Thus, her adjusted gross income=$70,000 prior to considering the sale of her home.Susan claims the standard deduction and she has one dependent daughter, 8 years old, who lives with her. Susan purchased the home on July 1, 2010 for $800,000. She has added 50,000 in permanent improvements to the home. The originally acquired the home to generate rental income. It was rented from July 1,2010 to July 1, 2013. On July 1, 2013 Susan moved into the home and used it as her principal residence until it was sold on July 1, 2015 While the home was rented, susan claimed deppreciation totaling $30,000 as a deduction on her income tax return. Susan sold the home for $1,100,000. She would like to provide detailed report of the amount of taxable gain she needs to report on her 2015 tax return

Explanation / Answer

To,

Ms. Susan Smart,

USA.

Subject: Tax Return for Year 2015.

Dear Madam,

Based on the information provided by you we have made necessary calculations and are hereby attaching you the tax return calculation on your Income for the year 2015.

You have mentioned that you have sold the seld occupied property on July 1, 2015 at $1,100,000. This income is excluded from your income as you owned your home and lived in it for at least 2 years out of the 5-year period leading up to the sale.But in this case you cannot claim the deduction for depreciaition as that was a self occupied preperty for 2015.

The normal calulation tax based on your income is as follows:

It looks like you will owe additional tax in the amount of $8719 based on the data you have submitted.

Also we advise you to filke Form 1040 relating to the income arising from sale of house property- Income from long term capital gain.

Sincerely Yours.,

CPA

Filing Status: Single Dependents: 1 Exemptions: 2 Exemption Value: 8000 Income: 70000 Adjustments to Income: 0 Adjusted Gross Income(AGI): 70000 Standard Deduction: 6300 Itemized Deduction: 0 Taxable Income: 55700 Tax: 9719 Credits: 1000 Other Taxes: 0 Payments: 0 Your Tax Bracket: 25% Your Effective Tax Rate: 17%

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