Question

Which of the following rules must be met for a taxpayer to be able to exclude the gain on the sale of a personal residence?

a. The taxpayer must NOT have used the gain exclusion provision in the five years prior to the sale
b. The taxpayer may use the exclusion on a vacation home or second home if NOT used for the principal residence
c. The exclusion is $500,000 for taxpayers who are married filing jointly
d. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale
e. The taxpayer must have used the property as a personal residence for a total of two or more years during the five year period prior to the sale

Answer 1

To exclude the gain on the sale of a personal residence, the taxpayer must meet certain rules, including not having used the exclusion in the past 5 years, owning the home for 2 years within the 5-year period prior, and personally residing in the property for at least 2 years in that period.

Step-by-step explanation:

To be able to exclude the gain on the sale of a personal residence, certain rules must be satisfied according to the Internal Revenue Service (IRS) regulations. Notably:

• The taxpayer must NOT have used the gain exclusion provision in the five years prior to the sale.
• The taxpayer must have owned the residence for at least two years of the five year period prior to the sale.
• The taxpayer must have used the property as a personal residence for a total of two or more years during the five year period prior to the sale.

Answer choices 'a', 'd', and 'e' are correct and must be met in order to be eligible for the exclusion. However, the exclusion cannot be used on a vacation home or second home that was not used as the principal residence (eliminating choice 'b'), and while choice 'c' is a true statement regarding the limit of the exclusion for married filing jointly couples, it is not a rule that must be met in order to be eligible for the exclusion.