Charlotte purchases a residence for $105,000 on April 13, 2005. On July 1, 2016, 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?
?
I. If they sell the residence on June 1,2018 , they must recognize a gain of $\$ 15,000$ on the sale.
II. If they sell the residence on August 1,2018 , they will recognize no gain on the sale.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Quizplus · Accepted Answer

I) Charlotte and Howard can exclude up to $500,000 of gain on the sale of their personal residence since they meet both ownership and use tests (i.e. they owned the home for more than 2 years and lived in it as their principal residence for at least 2 of the past 5 years).
II) They can use the proceeds from the sale of their personal residence to purchase another residence (i.e. replacement property) and defer paying taxes on any capital gains. The cost of the replacement property must be equal to or greater than the net selling price (i.e. sale price minus selling expenses) of the personal residence.

Charlotte Purchases a Residence for $105,000 on April 13, 2005 $15,000\$ 15,000$15,000

Charlotte Purchases a Residence for $105,000 on April 13, 2005 $\$ 15,000$