Kelly, who is single, sells her principal residence, which she has owned and occupied for 8 years, for $375,000. The adjusted basis is $64,000 and selling expenses are $22,000. She purchases another principal residence three months later for $200,000. Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

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Kelly meets the requirements for exclusion of up to $250,000 of gain on the sale of her principal residence since she owned and occupied it for at least 2 out of the 5 years prior to the sale. Since her recognized gain on the sale is $39,000, which is less than the maximum exclusion of $250,000, she will not owe any capital gains tax on the sale. Her basis for the new principal residence will be its purchase price of $200,000.

Kelly, Who Is Single, Sells Her Principal Residence, Which She