UI the receipt of the life insurance proceeds? 10. M Peter died he purchased a $
ID: 2540841 • Letter: U
Question
UI the receipt of the life insurance proceeds? 10. M Peter died he purchased a $100,000 y aming John as the beneficiary. How willJohn be taxed ary, w ho is single, sold her home in 2018 for $800,000. She originally purchased the home in 2011 for $200,000. How much of her profit will be subject to tax? 11. John, who is single, has taken over the care of his mobher aneyin her old age. John pays all the bills pertaining to Nancy's home. He also pays for all of her groceries and pays for the rest of her support. Nancy has no income. What filing status should John use to give him the lowest tax liability? Would your answer change of Nancy was John's grandmother instead of mother? ase dato- n anExplanation / Answer
10
Homeowner exclusion:
An amount of capital gain up to $250,000 for singles is excluded in computation of gain if the following two tests are met.
The person owns the home and
Used it is his/her main home in 2 years out of 5 years prior to the date of sale.
Assuming Mary met the ownership and primary home test, she can exclude $250,000 of the gain
Total gain = sale proceeds - cost = $800,000 - $200,000 = $600,000
Taxable gain = Total gain - excluded gain amount = $600,000 - $250,000 = $350,000
Hence profit subject to tax = $350,000
* For married filing joint filers, amount of gain excluded is $500,000
11
The most favorable filing status available if conditions are met is "Head of household"
To qualify for the status the conditions to be met are:
a Single - Condition is met, as John is single
b Not be a qualifying widow or widower - condition is met, as from the details given, it is assumed
c Pay more than half the costs of keeping up a home for the year - condition is met, from the details given
d Qualifying person living with the taxpayer's home for more than half of the year - Condition is met, there is an exception for dependent parent, the dependent parent need not live with the taxpayer.
Of the two given situations:
If Nancy is the mother of John, John can file using "head of household" filing status
If Nancy is the grand mother of John, condition of the qualifying person living in the taxpayers home for more than half of the year is not met, hence John can not file as the "head of household" he can only file as "Single"
* Please comment if any further explanation is required, your rating is appreciated*
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.