Question

Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $820,000. Sarah used the property as a vacation home through December 31, 2014. She then used the home as her principal residence from January 1, 2015 until she sold it on January 1, 2018.

What amount of the gain on the sale does Sarah recognize?

Answer 1

1. A taxpayer who is Single or married filing separately is eligible for the exclusion limit of $250.000.

2. A taxpayer who is married filing jointly is eligible for the exclusion limit of $500,000

However in order to be eligible for the above exclusions, the taxpayer (in the first point above) or any of the spouses (in the second point above) as the case may be, shall satisfy the following requirement:

a. Ownership and residence rule:

Must have owned and lived in the home for a minimum of two out of the last five years immediately preceding the date of the sale.

The two years don't have to be consecutive.

In the question, since sarah is Sigle and satisified the above condition, she is eligible for $250,000 exclusion limit.

Sales proceesd = $820,000

Less cost = $600,000

Profit $220,000   

Since the above profit is less than the exclusion limit of $250,000, sarah doesn't have to recognize any gain.