Choice "D" is correct. The sale of the taxpayer's personal (primary or principal) residence is subject to an exclusion from gross income for gain of $500,000 married filing joint or $250,000 single. To qualify, the taxpayer must have owned and used the property as a principal residence for two years or more during the five year period ending on the date of the sale or exchange.
Taxpayer's Basis: | $ 300,000 | Purchase price |
| 40,000 | Improvements |
| 36,000 | Real estate commissions |
| 376,000 | Ending basis |
Sales Price: | 650,000 | |
Gain on sale: | $ 274,000 | Under allowed $500,000 exclusion for married couple |
Choice "c" is incorrect based on the above calculation. Choice "b" is incorrect. $274,000 is the realized gain, yet it does not need to be recognized.
Choice "a" is incorrect based on the above calculation.
