Question

In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet which of the following tests?

A. Rental test
B. Use test
C. Ownership test
D. Business use test
E. Use test and Ownership test

Answer 1

To exclude gain from the sale of a principal residence, the taxpayer must pass the 'Use Test' and 'Ownership Test', having owned and used the home as the principal residence for two of the last five years before the sale.

Step-by-step explanation:

In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet both the Use Test and the Ownership Test. The Use Test requires that the taxpayer has used the home as their principal residence for at least two of the last five years prior to the sale. The Ownership Test demands that the taxpayer has owned the home for at least two of the last five years prior to the sale. It is important to note that there is no 'Rental Test' or 'Business Use Test' specifically related to the exclusion of the gain on the sale of a principal residence.