Question

Mr. and Mrs. Darwin sold their principal residence on September 12, 2018, and purchased and moved...

Mr. and Mrs. Darwin sold their principal residence on September 12, 2018, and purchased and moved into a new residence three weeks later. They excluded their $353,000 gain realized on this sale from gross income. On October 2, 2019, the Darwins realized a gain on sale of the new residence. Which of the following statements about this second gain is true?

Group of answer choices

None of the other statements is true.

The Darwins may not exclude any of the gain from gross income.

If the Darwins sold the new residence because of a change in place of Mr. Darwin's employment, they may exclude up to $500,000 of the gain from gross income.

The Darwins may exclude $147,000 of the gain from gross income.

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Answer #1

The Darwins may not exclude any of the gain from gross income.

Reason:

In order to claim exemption on gain on sale of personal residence, the individual tax payer must satisfy 2 testes, namely,

  • Ownership Criteria
  • Eligibility Criteria

Even if the ownership criteria is satisfied. Eligibility criteria is said to be satisfied only if the tax payers have not excluded the gain from sale of their residential property at any time during the preceeding 2 years. However, proportionate exemption is allowed if the change in residence was due to employment reasons.

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