ExpertHard1 markMultiple Choice
CPA · Question 60 · Area IV: Individual Taxation
A taxpayer sold their principal residence for $600,000. They purchased it 5 years ago for $200,000 and have lived in it ever since. They are single. What is the taxable gain?
A taxpayer sold their principal residence for $600,000. They purchased it 5 years ago for $200,000 and have lived in it ever since. They are single. What is the taxable gain?
Answer options:
A.
$400,000
B.
$0
C.
$150,000
D.
$250,000
How to approach this question
1) Calculate Realized Gain ($600k - $200k = $400k). 2) Apply Section 121 Exclusion ($250k for Single). 3) Taxable = $400k - $250k = $150k.
Full Answer
C.$150,000✓ Correct
C
Realized Gain = $600,000 - $200,000 = $400,000. Under IRC §121, a single taxpayer can exclude up to $250,000 of gain on the sale of a principal residence (owned/used for 2 of 5 years). Taxable Gain = $400,000 - $250,000 = $150,000.
Common mistakes
Assuming the entire gain is tax-free regardless of the limit.
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