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

Answer options:

$400,000

$150,000

$250,000

How to approach this question

Section 121: Single Exclusion $250k. MFJ Exclusion $500k. Must own/use for 2 of 5 years.

Full Answer

B.$150,000✓ Correct

Under IRC §121, a single taxpayer can exclude up to $250,000 of gain on the sale of a principal residence if owned and used as such for 2 of the last 5 years. Realized gain is $400,000. Recognized gain is $400,000 - $250,000 = $150,000.

Common mistakes

Assuming the entire gain is excluded.

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