Question

Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $790,000. Sarah used the property as a vacation home through December 31, 2016. She then used the home as her principal residence from January 1, 2017 until she sold it on January 1, 2019.What amount of the gain on the sale does Sarah recognize?

Answer 1

soution :
given that
Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $790,000.
Sarah used the property as a vacation home through December 31, 2016.
also given that :
She then used the home as her principal residence from January 1, 2017 until she sold it on January 1, 2019.
calculation of the gain on the sale does Sarah recognize:
from given data its clear that
The home was used for personal residence for two years before the sale.
i.e jan 1 2017 to jan 1 2019
So, capital gain be excluded upto $250,000 as per tax payer relief act, as the residence is used as personal residence for two years out of five years before the sale.
therefore
Gain on sale=$790,000 -$600,000.=$190,000.

So, Sarah does not have to recognize any gain as the entire gain is excluded basing on the above tax payer relife act.