Question

This year, Barney and Betty sold their home (sales price $570,000; cost $156,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Multiple Choice

None of the choices are correct.

$208,000.

$34,000.

Incorrect

$190,000.

$414,000.

Answer 1

Calculation of gain or loss on sale:

a. Sale proceeds from the sale of the house = $570,000

b. Cost of the home sold = $156,000

Capital gain on sales of home (a - b) = $414000

**Filing status - Married filing jointly

Following basic points needs to be considered to know whether the capital gain is taxable or not? and if taxable, how much is taxable?

1. Exclusion limit:

Filing statues: Single or married filing separately = $250,000

  Married filing jointly = $500,000

2. Ownership & Residence requirement

In order to exclude $250,000 or $500,000, as the case may be, from your capial gain, the taxapayer (If single or married filing separately) or any of the spouses (If married filing jointly) must have owned and used the home as the primary home for 2 of the last 5 years of ownership.

Coming to the question,

As Barney and Betty (Assuming filing status as married filing jointly) didn't own and reside in the home for more than 2 years (or 24 months) thay are not qualified for the above specified exclusion.

Therefore, the entire capital gain of $414,000 is taxable and entire amount is included in gross income.

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