Question

Serena is single. She purchased her principal residence three years ago. She lived in the home until she sold it at a $300,000 gain this year. Serena was allowed to exclude $250,000 of the $300,000 gain. What is the character of the $50,000 gain she was not able to exclude?

A. Ordinary income/gain
B. Short-term capital gain
C. Long-term capital gain
D. Personal gain
E. None of these

Answer 1

The $50,000 gain that Serena was not able to exclude from the sale of her principal residence is classified as C) long-term capital gain.

Step-by-step explanation:

The $50,000 gain that Serena was not able to exclude from the sale of her principal residence is classified as Long-term capital gain.

When a taxpayer sells their principal residence, they may be eligible to exclude up to $250,000 of the gain if single, or up to $500,000 if married filing jointly. However, any gain above that exclusion amount is subject to taxation.

In Serena's case, she had a gain of $300,000 but was only able to exclude $250,000. The remaining $50,000 is considered long-term capital gain and will be subject to taxation at the appropriate capital gains tax rate.