Question

Edith and Jim, a long-time married couple, have lived in their home for 30 years. They are ready to sell the home and move into a retirement community, where they will pay a monthly rent. Their home has appreciated in value by $300,000. They are afraid they will have to pay tax on the $300,000 if they do not buy another home. How would you adivse them?

		You will not be able to exclude the gain unless you purchase a home worth at least as much as the one you sold.
		You qualify to exclude up to $500,000 of gain on the sale. There is no requirement that you replace the home in order to exclude the gain.
		You will not be able to exclude the gain unless you purchase a replacement home within two years.
		You can exclude up to $250,000 of the gain if you do not buy a replacement home.

Answer 1

They qualify to exclude up to $500,000 of gain on the sale. There is no requirement that you replace the home in order to exclude the gain. Option B is correct. As per Section 121, an individual can exclude from gross income $250000 and $500000 in case of a married couple filing jointly on account of sale of real property, provided they have stayed in the home for 2 out of 5 years before the sale date,being a primary residence. As in the above case, they are married and live in the house for 30 years, so they can deduct upto $500000 of gains if any.