Eric and Faye, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years, they plan on moving around the country and renting. What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo
A) $0 $0
B) $35,000 $35,000
C) $0 $285,000
D) $35,000 $285,000
E) $285,000 $225,000

Question

Eric and Faye, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years, they plan on moving around the country and renting. What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo
A) $0 	$0
B) $35,000 $35,000
C) $0 $285,000
D) $35,000 $285,000
E) $285,000 $225,000

Quizplus · Accepted Answer

The correct answer is C because the couple can exclude up to $250,000 of gain from the sale of their principal residence if they meet certain requirements, including having owned and used the home as their primary residence for at least two of the five years preceding the sale. Since the couple has owned and used the home for 17 years, they meet this requirement. The couple's adjusted basis for the home is $80,000, and they sold it for $375,000, so their realized gain is $295,000. However, they can exclude up to $250,000 of this gain, so their recognized gain is $0. If the couple elects to forgo the § 121 exclusion, their recognized gain would be $285,000.

Eric and Faye, Who Are Married, Jointly Own a House