Final answer:
The tax on the sale of Adnan and Lola's home is $10,000. This is calculated by subtracting the $500,000 exclusion from their capital gain of $550,000, leaving a taxable gain of $50,000, which is taxed at an assumed rate of 20% resulting in a tax bill of $10,000.
Step-by-step explanation:
The question pertains to the calculation of capital gains tax on the sale of a primary residence by Adnan and Lola, who are filing jointly. To calculate the tax on the sale of their home, we need to determine the capital gain which is the difference between the sale price and their cost basis. Since they sold the house for $950,000 and the cost basis is $400,000, the total capital gain is $550,000. However, under the current U.S. tax code, married couples can exclude up to $500,000 in gains on the sale of their primary residence, provided they have lived in the home for at least two of the last five years. Subtracting this exclusion, their taxable gain is $50,000.
Adnan and Lola's marginal tax rate is 37%, but as long-term capital gains are typically taxed at a lower rate, their marginal rate does not directly apply to the sale. Long-term capital gains tax rates for joint filers are generally 0%, 15%, or 20% depending on the income bracket but because the information provided does not specify the applicable long-term capital gains rate, we will assume the highest possible rate they could pay, which is 20%. Hence, the tax would be 20% of $50,000, which equals $10,000.
Therefore, the correct answer to the tax on the sale of their home is $10,000 (Option D).