Question

The tax law contains a provision that excludes from taxation up to $250,000 of gain (for a single taxpayer) on the sale of the personal residence. Among other things, the law requires that the home serve as the personal residence of the taxpayer for a specific period of time prior to the sale. If John delayed the sale of his home to meet this requirement, it may be an example of tax planning using the ______.

Answer 1

The tax planning strategy used by John to delay the sale of his home in order to meet the requirement of the tax law is known as timing income.

Step-by-step explanation:

The tax planning strategy used by John to delay the sale of his home in order to meet the requirement of the tax law is known as timing income. Timing income is a method used by taxpayers to strategically time their income and expenses in order to minimize their tax liability. In John's case, it involves delaying the sale of his home to qualify for the tax provision that excludes up to $250,000 of gain on the sale of a personal residence. By waiting to sell his home until he meets the residency requirement, John can take advantage of the tax exemption and potentially reduce his taxable income.