Charlotte purchases a residence for $105,000 on April 13,2004.On July 1,2015,she marries Howard and they use Charlotte's house as their principal residence.If they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.Which of the following statements is/are correct concerning the sale of their personal residence?

Question

Charlotte purchases a residence for $105,000 on April 13,2004.On July 1,2015,she marries Howard and they use Charlotte's house as their principal residence.If they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.Which of the following statements is/are correct concerning the sale of their personal residence?
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Quizplus · Accepted Answer

I. Charlotte qualifies to exclude up to $250,000 of gain on the sale of her personal residence. Since she is married, she and Howard can exclude up to $500,000 of gain on the sale of their personal residence as long as they meet the ownership and use tests.

II. In order to meet the ownership and use tests for the exclusion of gain on the sale of their personal residence, Charlotte and Howard must have owned and used the property as their principal residence for at least 2 out of the 5 years preceding the sale. In this case, Charlotte owned and used the property as her principal residence for more than 2 years before she married Howard and they subsequently used the property as their principal residence. Therefore, they meet the ownership and use tests and can exclude up to $500,000 of gain on the sale of their personal residence.

Charlotte Purchases a Residence for $105,000 on April 13,2004