Final answer:
The correct statement for the Johnsons, who have lived in their home for 4 years and expect a profit of $200,000, is that the gain is exempt from tax as it is under the $250,000 exclusion for a single filer or $500,000 for a married couple filing jointly.
Step-by-step explanation:
The question relates to the tax implications of selling a primary residence and the subsequent capital gains. According to the IRS tax code, if you have lived in your home for at least two out of the last five years, you can exclude up to $250,000 of the gain from the sale of your home if filing as a single individual, or $500,000 if filing jointly as a married couple. This rule is outlined in Section 121 of the Internal Revenue Code. Therefore, the correct statement for the Johnsons, who have lived in their home for the last 4 years and expect a profit of nearly $200,000 from the sale, is that the gain is exempt from tax, given that it is under the applicable exclusion limit.
If we consider the scenarios provided for additional context:
- Freda's situation indicates that she would not owe any tax upon selling her house because the gain is $100,000, which is under the $250,000 exclusion for a single filer.
- Ben's situation shows that his equity in the house is $100,000, calculated as the current value ($160,000) minus the remaining bank loan ($60,000).
It is important to note that rolling over the gain to a new house of equal or greater value to delay the tax, a rule that was previously part of the tax code, no longer applies.