Tax Court in Brief | Webert v. Commissioner | Sale Of Principal Residence – Tax


United States: Tax Court in Brief | Webert v. Commissioner | Sale Of Principal Residence

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Tax litigation: the week of April 4, 2022 to April 8, 2022

Webert v. Comm’r, TC Memo. 2022-32 | April 7, 2022 | Gustafson, J. | Dekt. No. 15981-17

Opinion

Short summary: The Weberts were married in 2004. Ms. Webert bought a house on Mercer Island in 2005. That same year, Ms. Webert was also diagnosed with cancer, the treatments for which led to a prolonged period of financial insecurity.

The Weberts resided in the Mercer Island home until 2009. Thereafter, Mrs. Webert rented the Mercer Island home, and the couple resided in Mr. Webert’s home in Sammamish, Washington. Ms. Webert sold the Mercer Island home in 2015.

The Weberts filed joint federal income tax returns for the 2010 through 2015 tax years. During those years, the Weberts reported rental income from the Mercer Island home on Schedule E, “Income and additional losses. The Weberts said they used the Mercer Island home for personal purposes for 14 days in 2010 and zero days from 2011 to 2015. The depreciation schedules the Weberts attached to their returns for those years reflected the number of days of Fair rental reported for the property. on their Schedule E. On their 2015 return, the Weberts reported the sale of the Mercer Island home, but excluded the gain from gross income.

The Internal Revenue Service (“IRS”) assessed Webert’s federal income tax for the 2015 tax year in connection with the gain on the sale of the Mercer Island home. The Weberts filed a motion with the Tax Court. On motion for summary judgment, the IRS argued that there was no real dispute of material fact as to whether the Weberts could exclude the gain realized from the sale of the Mercer Island home from gross income. .

Key issues

  • Is there any real dispute to the material fact that the Weberts did not use the Mercer Island house as their primary residence for at least two of the five years immediately after the house was sold?

  • Is there any real dispute to the material fact that Mrs. Webert’s health issues were not the main reason for the sale of the Mercer Island house?

Main holdings

  • No, there is no real dispute of the material fact that the Weberts did not use the Mercer Island house as their principal residence for at least two of the five years immediately preceding the sale of the house.

  • Yes, there may be a genuine dispute that Mrs. Webert’s health issues were the primary reason for the sale of the Mercer Island home. However, it is unclear whether this factual dispute is material.

Main points of law

  • The Tax Court can grant summary judgment where there is no real dispute over a material fact and a decision can be made at law. Tax Court Rule 121(b); Sundstrand Corp. against Comm’r98 TC 518, 520 (1992), affirmed, 17 F.3d 965 (7th Cir. 1994).

  • A partial summary judgment is appropriate when only certain issues in a case can be determined as a matter of law. rule 121(b); Turner wide. Sys., Inc. & Subs. v. Comm’r111 TC 315, 323–24 (1998).

  • The party seeking a motion for summary judgment bears the burden of showing that there is no genuine dispute of a material fact. Dahlstrom vs. Comm’r, 85TC 812, 821 (1985). The Tax Court will make factual inferences in the light most favorable to the unmoving party. However, the party objecting to the summary judgment has a duty to state specific facts that show that there is a real issue for the trial. Tax Court Rule 121(d).

  • Gross income refers to all income from any source. IRC § 61(a); Treasures. Reg. § 1.61-1(a).

  • The gain realized on the sale of property is generally included in the taxpayer’s gross income. IRC § 61(a)(3).

  • However, the gain on the sale of property held and used by a taxpayer as a principal residence for at least two of the five years immediately preceding the sale is excluded from gross income. CR § 121(a).

  • Gain from the sale or exchange of a principal residence for the primary reason of a change in workplace, health, or unforeseen circumstances is also excluded from gross income. To seeCR § 121(c)(2)(B); Treasures. Reg. § 1.121-3(b). The amount of the exclusion is determined by multiplying the maximum amount of the exclusion ($250,000 for single returns and $500,000 for joint returns) by the time the taxpayer used the property as their principal residence during of the previous five years divided by two years. Treasures. Reg. § 1.121-3(g)(1).

Knowledge: This case highlights the importance of being consistent in how things are reported to the IRS. Taxpayers need to see the big picture of their return and not succumb to the temptation to treat each item individually (here, the rental of the Mercer Island house and the

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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