Question

Robert and Tami, married and filing jointly, lived in their home for two years. Property values in their area rose dramatically during this time, and at the beginning of the third year, they sold their home at a profit of $560,000. What is the maximum amount of profit that Robert and Tami can exclude from taxable gain?

Answer 1

Since they owned and lived in the home for two before the sale, they can claim up to $500,000 of profit is tax-free, if they are married and file a joint return. The law allows a married couple filing joint return to exclude maximum $500,000 profit from income tax.

Tthis exclusion will be $250,000 for a single person. This exclusion can be used every time a homeowner sells a primary residence, if he owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.

The capital gain in this case would be =$560,000-$500,000

=$60,000.