ExpertMedium1 markMultiple Choice
CPA · Question 68 · Area IV: Property Transactions
A single taxpayer sells their principal residence for a $400,000 gain. They lived in the home for 18 months due to a job transfer (a qualified unforeseen circumstance). The maximum exclusion is normally $250,000. What is the exclusion amount allowed?
A single taxpayer sells their principal residence for a $400,000 gain. They lived in the home for 18 months due to a job transfer (a qualified unforeseen circumstance). The maximum exclusion is normally $250,000. What is the exclusion amount allowed?
Answer options:
A.
$0
B.
$187,500
C.
$250,000
D.
$400,000
How to approach this question
Reduced Exclusion Calculation: (Months Qualified / 24 Months) * Max Exclusion. 18/24 = 0.75. 0.75 * $250,000 = $187,500.
Full Answer
B.$187,500✓ Correct
IRC §121(c). Because the sale was due to a job transfer (qualified reason), a pro-rated exclusion is allowed. 18 months / 24 months = 75%. 75% of $250,000 = $187,500.
Common mistakes
Thinking no exclusion is allowed because the 2-year test wasn't met.
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