Michael (single) purchased his home on July 1, 2004. On July 1, 2012 he moved out of the home. He rented out the home until July 1, 2013 when he moved back into the home. On July 1, 2014 he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2014 gross income?

Question

Quizplus · Accepted Answer

Under IRS rules, a taxpayer can exclude up to $250,000 of capital gain from the sale of their primary residence if they meet certain conditions. One of the conditions is that the taxpayer must have owned and used the property as their primary residence for at least 2 out of the previous 5 years. In this case, Michael owned and used the property as his primary residence for 8 years (from July 1, 2004, to July 1, 2012) before renting it out for a year and then moving back in for another year before selling it on July 1, 2014. Therefore, he meets the ownership and use test, and is eligible to exclude up to $250,000 of the $300,000 gain from his gross income in 2014.

Michael (Single) Purchased His Home on July 1, 2004