Ethan (single) purchased his home on July 1, 2008. On July 1, 2015 he moved out of the home. He rented the home until July 1, 2017 when he moved back into the home. OnJuly 1, 2018 he sold the home and realized a $210,000 gain. What amount of the gain isEthan allowed to exclude from his 2018 gross income?

Question

Quizplus · Accepted Answer

According to the IRS rules on home sales, a homeowner can exclude up to $250,000 ($500,000 for married couples) in gain from the sale of their primary residence if they meet certain requirements. One of those requirements is that the homeowner must have owned and used the home as their primary residence for at least two of the previous five years before the sale. In Ethan's case, he meets this requirement because he owned the home from July 1, 2008 to July 1, 2015 (7 years) and then used it as his primary residence again from July 1, 2017 to July 1, 2018 (1 year). This adds up to 8 years, which meets the two out of five-year requirement. Therefore, Ethan can exclude up to $250,000 in gain from the sale of his home. Since the gain was $210,000, he can exclude all of it and not have to pay taxes on it. Therefore, the correct answer is B) $168,000.

Ethan (Single) Purchased His Home on July 1, 2008