Meg owns a personal residence that she inherited from her mother five years ago. For estate tax
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Meg also owns another house that she purchased in a resort community. She wants to sell the inherited house and move to the resort community. Her brother advises Meg that losses on the sale of personal use assets are not deductible but that losses on the sale of rental property are deductible. He suggests that she rent the inherited house to the prospective buyer, with the option to buy it for $500,000 at the end of the one-year rental period. By doing so, she will be able to claim a deduction for the loss. The loss on the sale would be $125,000, reduced by the amount of depreciation deducted on the rental house. If necessary, Meg's brother can arrange for an appraisal to reflect that the house is currently worth $625,000.
Meg follows her brother's advice and takes a deduction for the loss when she sells the house in one year. Has Meg acted appropriately? Explain.
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Related Book For
South Western Federal Taxation 2015 Essentials Of Taxation Individuals And Business Entities
ISBN: 9781285438290
18th Edition
Authors: James Smith, William Raabe, David Maloney, James Young
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