Question

In 2019, Colin and Laura sold their house for $990,000. They paid $40,000 in expenses so their proceeds are $950,000. They bought the house in 2013 and paid $300,000 for the home and spent $30,000 to add on a garage so their basis would be $330,000. They subtract $330,000 from $950,000 to find their gain equals $620,000. When filing their joint income tax return, if all of other conditions are met, what is the maximum amount Colin and Laura could exclude from the sale of their home?

A. $330,000 B. $500,000 C. $620,000 D. $950,000

Answer 1

The gain on sale of taxpayer’s personal residence is subject to a $250,000 exclusion (for other than married filing jointly) from gross income; excess gain over the applicable $ limit given above is taxable.

For married filing jointly (MFJ) the limit is $250,000 exclusion available for each spouse, hence total $500,000 exclusion available for married filing jointly. To exclude $500,000 as married filing jointly, it is not necessary that both spouses must own the house, but both must use the house.

Thus, Colin and Laura together can claim a maximum exclusion of $500,000

Thus the answer is B. $500,000

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