Pedro, age 57, is the sole owner of his principal residence, which he has owned
ID: 2457037 • Letter: P
Question
Pedro, age 57, is the sole owner of his principal residence, which he has owned and occupied for 10 years. Maria, his spouse, has also lived there 10 years. He sells the house for a realized gain of $340,000.
If an amount is zero, enter "0".
a. Can Pedro use the § 121 exclusion if he and Maria file a joint return? yes or no ??
If Pedro can use the § 121 exclusion, the maximum eligible amount of § 121 exclusion (before any limitations) is ?
Their realized gain is ?
and the recognized gain is ?
b. Can Pedro use the § 121 exclusion if he files a separate return? yes or no ?
What is the maximum eligible amount of the exclusion?
The recognized gain is ?
c. Assume instead that the realized gain is $550,000 and a joint return is filed.
The recognized gain is ?
d. Assume instead that the realized gain is $550,000 and separate returns are filed.
The recognized gain is ?
e. Assume same facts as in requirement (a) except that Maria and Pedro have been married for only 18 months and that she has lived in his house only since their marriage. They file a joint return.
The recognized gain is ?
Explanation / Answer
a. Realized gain $340,000
§ 121 exclusion (340,000)
Recognized gain $ -0-
Pedro and Maria are eligible for a maximum § 121 exclusion of $500,000. One spouse, Pedro, meets the ownership requirement and both spouses meet the use requirement.
b. Realized gain $340,000
§ 121 exclusion (250,000)
Recognized gain to Pedro $ 90,000
Pedro is eligible for a maximum § 121 exclusion of $250,000 on his separate return. Since Maria has no ownership interest in the residence, she does not report anything on her separate return regarding the sale of the residence.
c. Realized gain $550,000
§ 121 exclusion (500,000)
Recognized gain $ 50,000
Pedro and Maria are eligible for a maximum exclusion of $500,000.
d. Realized gain $550,000
§ 121 exclusion (250,000)
Recognized gain $300,000
Pedro is eligible for a maximum § 121 exclusion of $250,000. Since Maria has no ownership interest in the residence, she does not report anything on her separate return regarding the sale of the residence.
e. Only Pedro is eligible for the § 121 exclusion on the sale of his house. While only Pedro needs to meet the ownership requirement, both Pedro and Maria need to meet the use requirement to be eligible for the $500,000 exclusion amount.
Realized gain $340,000
§ 121 exclusion (250,000)
Recognized gain $ 90,000
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