Ethan (single)purchased his home on July 1,2009.He lived in the home as his principal residence until July 1,2016,when he moved out of the home,and rented it out until July 1,2018,when he moved back into the home.On July 1,2019,he sold the home and realized a $210,000 gain.What amount of the gain is Ethan allowed to exclude from his gross income?

Question

Quizplus · Accepted Answer

According to the rules of the primary residence exclusion, a taxpayer can exclude up to $250,000 ($500,000 for married couples) of gain on the sale of their principal residence, as long as they have lived in the home for at least two of the previous five years before the sale. In this case, Ethan lived in the home for seven years before renting it out for two years and then moving back in for one year before selling it. Therefore, he meets the two-out-of-five-years requirement and can exclude up to $250,000 of the gain. However, since the gain was only $210,000, he can exclude the entire amount and his answer is B.

Ethan (Single)purchased His Home on July 1,2009