Question

Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $600,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude?

A. $0
B. $250,000
C. $500,000
D. $600,000

Answer 1

Larry and Darlene may exclude up to $500,000 of the gain.

Step-by-step explanation:

Larry and Darlene may exclude up to $500,000 of the gain.

According to the IRS, if you meet the ownership and use tests, you may qualify for the exclusion of up to $250,000 of the gain on the sale of your main home if you are single and if both you and your spouse meet the ownership and use tests, you can exclude up to $500,000. In this case, Larry owned and lived in the home for five years before marrying Darlene, and they lived in the home for one year before selling it. Therefore, they meet both the ownership and use tests, and can exclude up to $500,000 of the gain.