Video instructions and help with filling out and completing Who Form 4797 Exclusion

Instructions and Help about Who Form 4797 Exclusion

Hello and welcome to this session this is Professor Farhad in this session we would work to examples illustrates illustrating section 121 the first example is number 28 number 88 actually and here are the facts card purchased his residency on January 2nd 2013 for 260 thousand after having lived there during 2012 as a tenant under a lease with an option to buy so he started living there as early as 2012 but he was not an owner the contract was he had the option to buy but he lived there as a tenant on August 1st 2014 car sells his residence for three hundred and fifteen thousand on June 13 called purchases a new residence for 370 so basically on a timeline this is 2012 he lived there as a tenant the clause was the contract was rent to buy so he lived there for rent to buy and he purchased it he lived there for a year then he purchased it in on January 2nd so at the beginning of the year 2013 so he lived there then he sold it then he sold it so this is 2014 in 2014 he sold that sometime in August okay so basically he was technically an owner because he purchased it here he was technically an owner only during this period this period in this period okay just to know the ownership level so the first question is what was what is called the recognized gain and what's his basis in the new residence so what is his recognized gain how much gain did he he needs to recognize well how do you recognize again well we have to know the amount the the selling proceeds how much it he sold it for he sold it for three hundred and fifteen thousand so the proceeds the amount realized or the proceeds were three hundred and fifteen thousand then if there's any selling prices in here we don't have any selling prices to deduct then we have to deduct the adjusted basis and what was his adjusted basis right here two hundred and sixty thousand so that's minus two hundred and sixty thousand that's in parentheses two hundred and sixty thousand his gains are fifty five thousand that's his game now the question is how much of this gain he can execute okay how much of it he can execute and the answer is none the answer is none he did not live there for two years he did not live there for two years and when he sold his house they did not tell us that he sold that for employment purposes or for health reasons or for other circumstances and foreseen circumstances so guess what the whole fifty five thousand will be taxable and what's his basis in the new residency what's his basis how much did he pay for it he paid 376 so the basis in the new residency is sorry 367 that's his basis in the new residency that's pretty straight forward so that's question that's answer that's answer a let's look at number B number B asks assume instead called his original residence on January 2nd rather than 2012 rather than January 2nd 2013 well here we are assuming is he bought it so this is 2012 he bought it here he lived there 2012 he lived here 2013 and 2014 he sold it in August under this scenario he lived there 2012 2013 and once he once his he's he lived there for those two years starting forward now he qualifies for section 121 so if he sold it in 2014 any time in 2014 he qualifies for for section 21 and what's his recognized gain how much does he need to recognize was let's calculate the gain again real quick so the proceeds were this is basically our people we just did earlier 3:15 - two-sixty you can you need to deduct 260 - or parentheses it doesn't matter so the gains are 55 how much he would need to recognize none none none of it is taxable why because he lived there two years okay and what's his basis in the new residency once again his basis and didn't do residency is irrelevant to what happened when he sold the property it's 367,000 okay and a what could call do to minimize his recognized gain so basically this is a tax strategy question what should he have done assuming assuming we're gonna go back to the original example a assuming assuming he bought it he bought it in 2013 the beginning of 2030 well what could he have done he could have agreed he could have waited until you know until the year-end then sold it after or he could have negotiated with the with the seller that he will they will close after year end so that this way he'll have saved his himself paying taxes on the gain paying tax on the gain just lived there until the end of the year then said after two years so that's the that's number 888 and hopefully this is basically reinforcing the concept of section 121 let's look at number 89 which is again section 121 a little bit different we're gonna be adding more facts but it's the same concept Wesley who's a single it's important because if you're single or married the DEP ever when it comes to the amount of exclusion this is his personal residency with the real estate agent on March 3rd 2014 at a price of 390 that's what he's Wesley's hoping to get he rejected several offers and the 350 range during the summer well it's really irrelevant this is just information they're trying to throw at you finally on August 16 2014 he and the purchaser sign a contract the salad for 363 so the selling is the gross proceeds is 363 the sale the closing took place on September 7 2014