Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago, she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

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According to § 121 of the Internal Revenue Code, a taxpayer may exclude up to $250,000 of realized gain from the sale of their principal residence if they owned and occupied the home for at least 2 out of the 5 years preceding the sale. However, if the taxpayer is married and filing jointly, they may exclude up to $500,000 of realized gain if both spouses meet the ownership and use requirements. In this case, Deidra owned and occupied the home for 10 years, and Doug has never owned a home, so they both meet the ownership and use requirements. Therefore, they can exclude the realized gain of $425,000 from their gross income if they file a joint return.

Deidra Has Owned and Occupied Her Principal Residence for 10