A taxpayer sells a personal residence for $600,000. They bought it 3 years ago for $200,000 and have lived in it as their primary residence for the entire time. They are single. What is the recognized gain?

Answer options:

$150,000

$400,000

$100,000

How to approach this question

1. Calculate Realized Gain ($600k - $200k = $400k). 2. Apply §121 Exclusion ($250k Single / $500k MFJ). 3. Recognized = Realized - Exclusion.

Full Answer

B.$150,000✓ Correct

Realized gain = $600,000 - $200,000 = $400,000. IRC §121 allows a single taxpayer to exclude up to $250,000 of gain if the ownership and use tests (2 out of 5 years) are met. $400,000 - $250,000 = $150,000 recognized LTCG.

Common mistakes

Applying the $500k MFJ limit to a single filer.

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