Section 121 gain and losses Research Paper Example | Topics and Well Written Essays - 1500 words

Section 121 gain and losses - Research Paper Example The headquarters of the agency is in Washington DC. It is the role of the agency to ensure that it administers the laws related to revenue and asses and collect taxes. The agency has different sections guiding its operations. This paper in particular will explore at section 121. In its discussion, the paper will include the rules and exceptions which are involved in this paper. It will dig further to the presentation of real world examples of the section. (Yancey 2004) Section 121 offers the provision to every taxpayer filling the existing federal tax returns an entire exclusion on any kind of capital gains tax involved in selling their primary residence. The agency on an bi-annual basis provides $250,000 for persons filling single returns and also $500,000 for those married couples filing joint returns is given when the property in question represents their principal residence and when the taxpayer has been living in the home for a duration of at least two or five years. Capital Gai ns Tax The capital gain tax is imposed when one sells the primary residence at a price higher than the original purchase price. Section 121 excludes waives and eliminates the tax when the actual gain is not more than $250,000 and $500,000 for married couples and exclusion upon realization that the property has been used by the taxpayer as his/her principle residence for a duration of two or more years. This kind of exclusion is often available after every two years. EXCEPTIONS Gross income included shall exclude gains from the exchange of property or from sales if during a period of five years ending on the date of exchange or sale, and then such kind of a property has been used by the taxpayer and owned as his principal evidence for duration of 2 or more years. (Yancey 2004) Limitations 1. In General In general terms, the amount of the gains which is excluded from the gross income under section (a) subject to any sale or exchange of any kind of property in any sale shall not be mor e than $250,000. 2. Special Rules for Joint Ventures In the scenario when the couples making the joint return for the given taxable year of a sale or an exchange then- (A) $500,000 Limitations for certain Joint Returns. The first paragraph shall be adopted though the substitution of $500,000 for $250,000 if- i. Either one of the spouses satisfies the authorities requirements as adopted in subsections a with respect to that particular property. ii. When both the spouses satisfies the use requirements of the subsection (a) in conjunction to that property iii. When none of the spouses satisfies the requirements as lay in subsection (a) with respect to that particular property by a particular reason of the third paragraph. B. Other Joint Ventures. If the requirements of sub section A is not met by the spouses, then the limitations that exist in the first paragraph shall be the summation of the entire limitations under the first paragraph where each and every spouses shall be entitled of the spouses had in the pat been married. Therefore every spouse shall be regarded as owning the property during that time when either of the spouses owns the property. (Boortz & Linder 2005) 3. Application to Only a single Sale or an Exchange after every 2 years. A. General If there was no exchange sale by the taxpayer to whom subsection (a) applies during the two year period which ends on the day of the sale or exchange then the subsection shall not apply to any