Question

Andy, a single man, buys a house in 2000 for $210,000 as his personal residence, living there 100% of the time. He has not made any improvements on the house since then. In 2019, he sells the house for $360,000, and moves to France.
How much of a Long-Term Capital Gain did he realize?

a. He did not realize any LTCG on this transaction

b. He realized $75,000 in LTCG on this transaction

c. He realized $150,000 in LTCG on this transaction

      How much income tax will Andy have to pay, related to the sale of his house? His    

      other income puts him in the 25% marginal tax bracket for ordinary income.

a. $  0 b. $ 11,250 c. $   18,750 d. $   22,500 e. $   37,500

Answer 1

Per IRS, the owner of the residence is eligible for a $250,000 Long term capital gain exclusion provided he/she has stayed in his/her residence for atleast 2 years out of the 5 years leading to the date of sale.

Since Andy is eligible for the $250,000 special capital gain exclusion, he would not realize any long term capital gain on the sale of his primary residence as the total gain recognized by him is less than $250,000.

Gain on sale of residence =$360,000 - $210,000 = $150,000

This $150,000 would be taxed at ordinary income tax rates to Andy.

Question 1:-

Hence, the correct answer is Option A - He did not realize any LTCG on this transaction.

Option B is incorrect. The $75,000 is an incorrect amount of LTCG based on the above observations

Option C is incorrect. The $150,000 recognized by Andy would not be LTCG as he meets the special capital gain exclusion criteria mentioned above.

Question 2:-

The income tax that Andy will have to pay = $150,000 * 25% = $37,500

The correct answer is Option E - $37,500 based on the calculation above.

Option A is incorrect. Andy will have to pay income tax on the income recognized on the sale of the house

Option B, Option C and Option D are incorrect based on the calculations above.

All the best and please let me know if you have any questions via comments.