Question

This year, Leron and Sheena sold their home for $729,000 after all selling costs. Under the following scenarios, how much taxable gain does the home sale generate for Leron and Sheena?

   

a.

Leron and Sheena bought the home three years ago for $135,000 and lived in the home until it sold.

Taxable Gain

Leron and Sheena bought the home one year ago for $486,000 and lived in the home until it sold.

Taxable gain

c.	Leron and Sheena bought the home five years ago for $298,000. They lived in the home for three years until they decided to buy a smaller home. Their home has been vacant for the past two years.

Taxable Gain

Answer 1

Answer

There is a condition that if we satisfy below two conditions, then we can exempt $500,000 while computing Gain:

1. We have to hold the house for 2 years before selling it.
2. We have to live in that house for 2 years before selling it.

1.

Gain =$594,000 ($729,000 - $135,000)

They are satisfying both the conditions, so we can exempt $500,000 from the Gain.

Actual Gain = $94,000 ($594,000 – 500,000)

2.

They are Not satisfying both the conditions, so we can’t exempt $500,000 from the Gain.

Actual Gain = $594,000

3.

They are satisfying both the conditions, as the house may be Vacant for three years but still before that they have lived in that for 2 years, so we can exempt $500,000 from the Gain.

Actual Gain = $431,000 ($729,000 – 298,000)

The gain is less than $500,000, so the whole Gain is exempt.

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