ExpertHard1 markMultiple Choice
CPA · Question 25 · Area IV: Individual Taxation
A single taxpayer sold their principal residence for a $400,000 gain. They had owned and lived in the home for only 12 months due to a job transfer to a different state (a qualified unforeseen circumstance). What is the maximum exclusion allowed?
A single taxpayer sold their principal residence for a $400,000 gain. They had owned and lived in the home for only 12 months due to a job transfer to a different state (a qualified unforeseen circumstance). What is the maximum exclusion allowed?
Answer options:
A.
$0
B.
$250,000
C.
$125,000
D.
$200,000
How to approach this question
1. Identify 'Hardship' exception (Job Transfer). 2. Calculate ratio of time met (12 months) to required time (24 months) = 50%. 3. Apply ratio to MAX exclusion ($250k), not the gain. 50% * $250k = $125k.
Full Answer
C.$125,000✓ Correct
Under IRC §121, if the ownership/use test is not met due to a change in employment, a prorated exclusion is allowed. The taxpayer met 12 of the required 24 months (50%). The maximum exclusion for a single taxpayer is $250,000. 50% * $250,000 = $125,000.
Common mistakes
Prorating the GAIN ($400k) instead of the EXCLUSION LIMIT ($250k).
Practice the full CPA REG Practice Exam 3
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is preparing an original tax return for a client who is claiming a refund based on a positi...HardQ02A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership...HardQ03A tax return preparer willfully attempts to understate the tax liability on a client's return by ...HardQ04Which of the following scenarios would most likely result in the assessment of a penalty for fail...HardQ05Regarding the disciplinary authority of State Boards of Accountancy, which of the following state...Hard