Which of the following statements regarding home-related transactions is correct?
A)If a taxpayer converts a home from personal use to rental use, the basis of the rental property is the greater of the basis of the property at the time of the conversion or the fair market value of the property at the time of the conversion.
B)If a taxpayer uses a residence as a rental property (and deducts depreciation expense against the basis of the property)and as a personal residence, the taxpayer will not be allowed to exclude the entire amount of gain even if the taxpayer otherwise meets the ownership and use tests and the amount of the gain is less than the limit on excludable gain.
C)If a taxpayer converts a rental home to a principal residence, the taxpayer's basis in the principal residence is the greater of the basis of the home at the time of the conversion or the fair market value at the time of the conversion.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

When a taxpayer uses a residence as both a rental property and a personal residence, and claims depreciation expense on the property, this depreciation must be recaptured upon sale. This means that the taxpayer cannot exclude the portion of the gain equal to the depreciation taken after May 6, 1997, from the income, even if they meet the ownership and use tests and the gain is less than the exclusion limit.

Which of the Following Statements Regarding Home-Related Transactions Is Correct