Question

Housing costs > ______ qualify for an exclusion, but are limited to ________

Answer 1

Eligibility for federal housing assistance is based on housing costs exceeding a certain threshold specific to household income and local market conditions, but this assistance is also subject to a cap.

Step-by-step explanation:

The question pertains to eligibility criteria for federal housing assistance, which supports income families that may not afford housing costs on their own. To qualify for an exclusion within housing assistance programs, housing costs must exceed a certain threshold which varies based on local housing market conditions and the household's income. However, these housing benefits are capped at a certain limit to ensure fairness and proper allocation of federal resources. The rules and limits of these programs are further detailed within government aid sections of housing assistance literature, such as the LibreTexts™ platform.

Answer 2

Housing costs > 30% of the taxpayer's adjusted gross income qualify for an exclusion, but are limited to $250,000.

Step-by-step explanation:

The statement is likely referring to the exclusion related to the sale of a primary residence in the United States, often known as the "home sale exclusion."

Home Sale Exclusion:

The Internal Revenue Service (IRS) allows taxpayers to exclude a certain amount of gain from the sale of their primary residence from taxable income.

This exclusion is designed to provide relief for homeowners who sell their homes and make a profit.

30% Rule:

The reference to "Housing costs > 30% of the taxpayer's adjusted gross income" may relate to a general guideline that suggests spending more than 30% of one's income on housing costs may be financially burdensome.

However, in the context of the home sale exclusion, this percentage is not directly used to determine eligibility.

$250,000 Limitation (Single Filer):

For individuals filing their tax returns as single filers, up to $250,000 of the gain from the sale of the primary residence can be excluded from taxable income.

This means that if the gain is less than or equal to $250,000, the entire amount can be excluded.

$500,000 Limitation (Married Filing Jointly):

For married individuals filing jointly, the exclusion limit is $500,000.

This means that if the gain from the sale of the home is $500,000 or less, the entire amount can be excluded from taxable income.

Ownership and Use Tests:

To qualify for the home sale exclusion, certain conditions must be met, including ownership and use tests.

Generally, the taxpayer must have owned and used the home as their primary residence for at least two out of the five years preceding the sale.

Capital Gains Tax Consideration:

The exclusion is particularly beneficial because it helps homeowners reduce or eliminate the capital gains tax on the sale of their primary residence.

Capital gains taxes are typically applied to the profit made from the sale of an asset, but this exclusion provides relief for homeowners.

Thus, Housing costs exceeding 30% of AGI can be excluded, capped at $250,000.