Michael (single) purchased his home on july 1, 2009. he lived in the home as his principal residence until july 1, 2017 when he moved out of the home and rented it out until july 1, 2018 when he moved back into the home. on july 1, 2019 he sold the home and realized a $300,000 gain. what amount of the gain is michael allowed to exclude from his 2018 gross income?

a. $0
b. $225,000
c. $250,000
d. $300,000

correct option is C. $250,000

Explanation:

given data

sold the home and gain = $300,000

to find out

amount of the gain allowed to exclude from gross income

solution

we know that Michael owned the property for the 10 years

so here Michael is not allowed to exclude the gain = 10 % that is $30,000

and The maximum gain exclusion permitted =  $250000

so here Michael will recognize $50,000 because amount exceed $250,000 for a single taxpayer and exclusion of gain on sales of property tax payer need to own and occupy the property as principle residence for the  2 out of 5 year immediately preceding the sales

so here correct option is C. $250,000

$250,000

Explanation:

Michael's post-2008 nonqualified use is one year. He owned the property for 10 years, so he is not allowed to exclude 10 percent of the gain ($300,000 × 10% = $30,000). That is, he must recognize at least $30,000 in gain. In this case, he will recognize $50,000 because that is the amount by which the gain exceeds the $250,000 maximum exclusion for a single taxpayer.