A married couple filing jointly has owned and occupied their personal residence for three years and sells it. Which statement is true about their capital gains tax exclusion?

A married couple filing jointly has owned and occupied their personal residence for three years and sells it. Which statement is true about their capital gains tax exclusion?

• A. They may exclude up to $250,000 per person.
• B. They may exclude up to $500,000 of any gain before becoming liable for taxes.
• C. They owe taxes on all gains.
• D. They may exclude up to $1,000,000

Answer: (B)

The main idea is the capital gains exclusion for a principal residence. A married couple filing jointly can exclude up to 500,000 of gain on the sale of their main home if they owned and used the home as their primary residence for at least two of the last five years. In this situation, they’ve owned and lived in the home for three years, so they meet the requirement. Therefore, up to 500,000 of their gain can be excluded from taxation. If their total gain is within that limit, no capital gains tax is due; if it’s larger, the amount over 500,000 would be taxed as long-term capital gains (with possible depreciation recapture if applicable). This is why the statement about excluding up to 500,000 is true for a married couple filing jointly.

The main idea is the capital gains exclusion for a principal residence. A married couple filing jointly can exclude up to 500,000 of gain on the sale of their main home if they owned and used the home as their primary residence for at least two of the last five years. In this situation, they’ve owned and lived in the home for three years, so they meet the requirement. Therefore, up to 500,000 of their gain can be excluded from taxation. If their total gain is within that limit, no capital gains tax is due; if it’s larger, the amount over 500,000 would be taxed as long-term capital gains (with possible depreciation recapture if applicable). This is why the statement about excluding up to 500,000 is true for a married couple filing jointly.