ExpertHard1 markMultiple Choice
CPA · Question 71 · Area 5: Property Transactions
A single taxpayer lived in a home for 1 year, rented it out for 2 years, then moved back in and lived there for 2 years. They sold it for a 0,000 gain. What is the maximum exclusion allowed under Section 121?
A single taxpayer lived in a home for 1 year, rented it out for 2 years, then moved back in and lived there for 2 years. They sold it for a 0,000 gain. What is the maximum exclusion allowed under Section 121?
Answer options:
A.
0
B.
0,000
C.
0,000
D.
0,000
How to approach this question
Non-Qualified Use Ratio: (Period of Non-Qualified Use / Total Ownership Period) * Gain = Taxable Gain (Cannot be excluded).
Full Answer
C.0,000✓ Correct
The period of non-qualified use (rental) is 2 years. Total ownership is 5 years. 2/5 (40%) of the gain is attributable to non-qualified use and cannot be excluded. 40% * 0,000 = 0,000 taxable. Remaining 0,000 is excluded.
Common mistakes
Ignoring the non-qualified use allocation and taking the full exclusion because the 2-year use test was met.
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