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AICPA Exam CPA-Regulation Topic 3 Question 8 Discussion
Topic #: 3
Ryan, age 57, is single with no dependents. On July 1, 1997, Ryan's principal residence was sold for the net amount of $500,000 after all selling expenses. Ryan bought the house in 1963 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed in Ryan's 1997 income tax return?
Choice 'b' is correct. $250,000 maximum exclusion from taxable income.
Rule: An individual may exclude from income up to $250,000 gain provided that the property was the taxpayer's primary residence for 2 of the last 5 years. Married taxpayers may exclude gains up to $500,000.
Choice 'a' is incorrect. $320,000. Ryan, age 57, was not married. Thus, his exclusion was limited to $250,000.
Choice 'c' is incorrect. The $125,000 exclusion was old law and eliminated for sales after 5/6/97.
Choice 'd' is incorrect, per the above rule.
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