On February 1, 2020, Stephen (who is single)sold his principal residence (home 1)at a $100,000 gain. He was able to exclude the entire gain on his 2020 tax return. Stephen purchased and moved into home 2 on the same day. Assuming Stephen lives in home 2 as his principal residence until he sells it, which of the following statements is true?
A)Under no circumstance will Stephen be allowed to exclude gain on home 2 if he sells home 2 in 2021.
B)Stephen will be eligible to exclude gain on home 2 only if he waits until 2025 to sell it.
C)In certain circumstances, Stephen may be able to exclude gain on home 2 even if he sells home 2 in 2020.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

According to the tax code, if an individual sells their principal residence and then purchases a new one, they may be eligible to exclude the gain on the new residence as well. However, there are certain circumstances that must be met. One of these is that the individual must have lived in the new residence for at least two out of the five years leading up to the sale. Since Stephen moved into home 2 on the same day that he sold home 1, he meets this requirement. Therefore, if he sells home 2 in 2020, he may still be able to exclude the gain on his tax return. However, there may be other factors or circumstances that could affect this eligibility.

On February 1, 2020, Stephen (Who Is Single)sold His Principal