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Ethan (single) purchased his home on July 1, 2008. He lived in the home as his...

Ethan (single) purchased his home on July 1, 2008. He lived in the home as his principal residence until July 1, 2015 when he moved out of the home and rented it out until July 1, 2017 when he moved back into the home. On July 1, 2018 he sold the home and realized a $198,500 gain. What amount of the gain is Ethan allowed to exclude from his 2018 gross income?

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Answer is highlighted in yellow Solution Answer: 158800 Explanation: As per internal revenue code section 121, a single filing a joint return can claim a maximum of $250,000 home sale exclusion. If he or she had owned and used the property for two years out of the last five years. In this case, Step.01: Realized gain 198500 Total use in years (2018-2008) Troy Qualify for 2 of last 5 years use test as principle home, actually lived 8 years out of 10. Step.02: 10 years Per rule, After Dec.31,2008, rental period is a disqualified period 2 years Qualified Ratio of gain (8/10) 0.800000 Therefore, Gain recognized = (198500*80%- 158800

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