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Test Your Tax Knowledge:
 

PART 1
Individuals

Correct!

The correct answer is "False".

ANALYSIS:

The sale of their home should not be reported on their tax return unless:

• They have a gain and do not qualify to exclude all of it, or
• They have a gain and choose not to exclude it.

To exclude the gain on the sale of your main home (up to $250,000 for each spouse) the Black’s must meet all of the following tests:

1. The ownership test
2. The use test
3. During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

According to the facts in the question, the Black’s meet the above tests and may exclude the gain.

Mr. and Mrs. Black realized a gain of $400,000 ($650,000 less $250,000) on the sale of their home. They are able to exclude the total gain of $400,000 because they are entitled to a $500,000 exclusion ($250,000 each). Since there is no gain to report, they should not report the transaction on their current tax return.  

Click here to proceed to Question 2

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