Question

Michael (single) purchased his home on July 1, 2004. On July 1, 2013 he moved out of the home. He rented out the home until July 1, 2013 when he moved back into the home. On July 1, 2015 he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2015 gross income?

A. $0
B. $225,000
C. $250,000
D. $300,000

Answer 1

Michael can exclude $250,000 of his $300,000 gain from the sale of his home from his 2015 gross income because he meets the two-year residency requirement.

Step-by-step explanation:

The student asked how much of the $300,000 gain Michael is allowed to exclude from his 2015 gross income after selling his home. Under current tax law in the U.S., single individuals are allowed to exclude up to $250,000 of gain on the sale of their primary residence, provided they have lived in the home as their primary residence for at least two out of the five years preceding the sale. Since Michael moved out of his home on July 1, 2013, and then moved back in on July 1, 2013, and sold the home on July 1, 2015, he meets the two-year residency requirement. Therefore, Michael is allowed to exclude $250,000 of his $300,000 gain from his gross income for tax purposes.