Question

Required information [The following information applies to the questions displayed below.) Steve Pratt, who is single, purchased a home in Spokane, Washington, for $587,500. He moved into the home on February 1 of year 1. He lived in the home as his primary residence until June 30 of year 5, when he sold the home for $940,000. (Leave no answer blank. Enter zero if applicable.) c. Assume the original facts, except that Steve married Stephanie on February 1 of year 3 and the couple lived in the home until they sold it in June of year 5. Under state law, Steve owned the home by himself. How much gain must Steve and Stephanie recognize on the sale (assume they file a joint return in year 5). Recognized gain on sale

Answer 1

Answer -

Step - (1) - Relevant Note on the Gain on Sale of Main Home -

As per U.S. Internal Revenue Service, If a taxpayer meets the following tests, they can exclude up to $500000 (if married and file a joint return) of the gain from the sale of a main home:

• The Ownership test - The taxpayer must have owned the home for at least 2 out of the last 5 years leading up to the sale of the home.
• The Residence test - The taxpayer must have lived in the home as their main home for at least 2 of the past 5 years.

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Step - (2) - Determination of Amount of Gain that Steve and Stephanie recognize on the sale -

	Amount ($)	Explanation
Recognized Gain on sale	0	They realized a $352500 ($940000-$587500) gain on the sale. However, the couple qualifies for the married filing joint exclusion of $500000 because they meets the tests. Consequently, they can exclude the entire gain.