Charlotte purchases a residence for $105,000 on April 13,2004.On July 1,2014,she marries Howard and they use Charlotte's house as their principal residence.If they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.Which of the following statements is/are correct concerning the sale of their personal residence?
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Charlotte purchases a residence for $105,000 on April 13,2004.On July 1,2014,she marries Howard and they use Charlotte's house as their principal residence.If they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.Which of the following statements is/are correct concerning the sale of their personal residence?  ​
A)Only statement I is correct. 
B)Only statement II is correct. 
C)Both statements are correct. 
D)Neither statement is correct.

Quizplus · Accepted Answer

I) Charlotte can exclude up to $250,000 of gain on the sale of her principal residence since she meets the ownership and use test. She owned the property for more than 2 years and used it as her principal residence for more than 2 years.

II) Charlotte's new residence costs $350,000, which is less than the net sale price of $370,000 ($390,000 - $20,000 selling expenses). Therefore, she can use all of her proceeds to purchase the new residence without paying any capital gains tax.

Charlotte Purchases a Residence for $105,000 on April 13,2004