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Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $800,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude

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anthougo

The amount of the $800,000 capital gain that Larry and Darlene can exclude is b. $250,000.

Darlene did not meet the two-year use since she only lived in the home for one year before it was sold. Larry and Darlene did not meet the two-year use test that would have qualified them to exclude $500,000 as a married couple.

Question Options:

a. $0

b. $250,000

c. $500,000

d. $600,000

Thus, Larry and Darlene can only exclude $250,000 instead of $500,000 from their taxable capital gain.  Therefore, the taxable gain on the sale of their residence is $550,000 ($800,000 - $250,000).

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