Question

Mary and Bill Markson purchased a house in 2011. The Marksons rented this property from June 2011 until August 2014 at which time they occupied the property as their principal residence. The house was acquired for $300,000 and the Marksons claimed $30,000 of cost recovery deductions during the 38 month rental period. The property was sold in March 2020 for $450,000. The property was used for a total of 105 months, with the last 67 months of use as the Markson’s principal residence.

What amount of gain will be recognized by the Marksons from the sale of this property?

Answer 1

Homeowner's Exclusion - The gain on sale of taxpayer's principal residence is subject to a $250,000 ($500,000 for MFJ) exclusion from the gross income.if the following two tests are met:

Test 1: Owns the home for at least 2 out of last 5 years and also used the home as principal home for at least 2 out of last 5 years.

Test 2: Exclusion of the gain has not been availed on the sale of another main home during the last 2 years.

Since, Marksons qualify both the test, they would be allowed a home owner's exclusion up to $500,000.

Calculation of Gain to be recognized by Marksons:.

Sale Price of the home	$         450,000
Less: Adjsuted Basis ($300,000 - $30,000)	$         270,000
Gain realized	$         180,000
Less: Home Owner's Exclusion	$       (180,000)
Gain to be recognized	$                     -

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