Intuit Academy Tax Practice Exam

What exclusion exists for the gain from the sale of a primary residence?

1. Gains up to $500,000 can be excluded for single filers

2. All gains from sale of home are tax-exempt

3. Gains must be less than $100,000 to qualify for exclusion

4. Only gains not exceeding the purchase price are excluded

The correct answer is: Gains up to $500,000 can be excluded for single filers

The exclusion for the gain from the sale of a primary residence allows eligible taxpayers to exclude up to $500,000 of gain if filing jointly or $250,000 if filing singly. This exclusion is applicable under specific conditions, including having owned and used the residence as their primary home for at least two out of the five years preceding the sale. The provision recognizes the importance of homeownership and aims to assist homeowners in receiving proceeds from their residence without incurring a significant tax burden on the appreciation of their home. This is particularly beneficial as homes can appreciate significantly over time, and taxpayers should not be penalized by excessive taxes on selling their primary home. The other options suggest different parameters or conditions that do not align with the established regulations concerning primary residence exclusions. For example, suggesting that all gains are tax-exempt overstates the exclusion or implies broader exemptions outside the detailed criteria set by the IRS. The claim that gains must be less than $100,000 or that only gains not exceeding the purchase price are excluded does not reflect the actual thresholds and conditions outlined in tax laws.