Rule: The sale of a taxpayer's primary residence is subject to an exclusion from gross income for gain. A maximum of $250,000 gain exclusion is provided for all taxpayers other than married couples filing jointly. Married couples filing jointly have a maximum gain exclusion of $500,000. To qualify for the full exclusion, the taxpayers must have owned and used the property as a primary residence for two years or more during the five-year period ending on the date of the sale or exchange. There is no age requirement to receive the exclusion, and no roll-over to another house is required [these applied to an older tax law].

Choice "a" is correct. Wynn's realized gain on the sale of the home is $200,000 [$450,000 - $250,000]. Wynn has owned and used the residence as his primary residence for the last six years. [Note that the purchase of the new home is of no consequence to the recognizable gain on the sale of the old home.] As the realized gain is less than the maximum excludable gain of $250,000 and Wynn has owned and used the property for more than two out of the last five years, Wynn has zero recognized gain on the sale of his residence.

Choice "d" is incorrect. This answer option incorrectly assumes that the gain is recognized to the extent the proceeds from the sale of the old house were not reinvested in the new house [$450,000 - $400,000 = $50,000]. Per the above rule, no roll-over to another house is required [these applied to an older tax law].

Choice "c" is incorrect. Wynn's realized gain on the sale of the home is $200,000 [$450,000 - $250,000]. Wynn has owned and used the residence as his primary residence for the last six years. [Note that the purchase of the new home is of no consequence to the recognizable gain on the sale of the old home.] As the realized gain is less than the maximum excludable gain of $250,000 and Wynn has owned and used the property for more than two out of the last five years, Wynn has zero recognized gain on the sale of his residence.

Choice "b" is incorrect. Wynn's realized gain on the sale of the home is $200,000 [$450,000 - $250,000], but the recognized gain is zero. Wynn has owned and used the residence as his primary residence for the last six years. As the realized gain is less than the maximum excludable gain of $250,000 and Wynn has owned and used the property for more than two out of the last five years, Wynn has zero recognized gain on the sale of his residence.