Question

Steve and Stephanie Pratt purchased a home in Spokane, Washington, for $459,500. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of year 5, when they sold the home for $730,000

b. Assume the original facts, except that Steve and Stephanie live in the home until January 1 of year 3, when they purchase a new home and rent out the original home. They finally sell the original home on June 30 of year 5 for $730,000. Ignoring any issues relating to depreciation taken on the home while it is being rented, what amount of realized gain on the sale of the home are the Pratts required to include in taxable income?

Recognized gain

_________?

Answer 1

Part B

Amount realized from the sale = $730,000

Adjusted basis = 459,500

Gain realized = $270,500

Exclusion = 0

Gain recognized = $270,500

Steve and Stephenie pratt used home for less than two years and also there home leaving was based unusual circumstances and therefore they do not qualify for home sale exclusion.

Part D

Recognized gain = $ 20500 (270500-250000)

Steve satisfies the both ownership as well as use test but Stephenie does not. So only Steve is eligible for 250000 exclusion.