Michael (single) purchased his home on July 1, 2008. He lived in the home as his principal residence until July 1, 2016 when he moved out of the home and rented it out until July 1, 2017 when he moved back into the home. On July 1, 2018 he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2018 gross income?

Question

Quizplus · Accepted Answer

Michael's post 2008 nonqualified use is one year. He owned the property for 10 years so he is not allowed to exclude 10% of the gain ($300,000 × 10% = $30,000). That is, he must recognize at least $30,000 in gain. In this case, he will recognize $50,000 because that is the amount by which the gain exceeds the $250,000 maximum exclusion for a single taxpayer.

Michael (Single) Purchased His Home on July 1, 2008