ExpertHard1 markMultiple Choice
CPA · Question 51 · Area IV: Individual Taxation
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?
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:
A.
$400,000
B.
$150,000
C.
$0
D.
$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
B
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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