18. A couple who sell their principal residence may take up to $500,000 in federal capital gains tax-free only if
Answer: D
A couple who sell their principal residence may take up to $500,000 in federal capital gains tax-free only if they have owned and occupied the house for at least 2 of the previous 5 years.
To qualify for the $500,000 exclusion on capital gains tax when selling a principal residence, the couple must have owned and occupied the property for at least 2 of the last 5 years. This requirement ensures that the exclusion is available to those who have made the residence their home for a significant period.
A) at least one of them has reached the age of 85.
This option is incorrect as there is no age requirement for the capital gains tax exclusion on the sale of a principal residence. The rule focuses on ownership and occupancy rather than the age of the homeowners.
B) they buy a replacement home of equal or greater value than the one being sold within a year.
This statement is misleading and incorrect. The tax exclusion does not require the purchase of a replacement home. The primary criteria for the exclusion are ownership and occupancy, not reinvestment in another property.
C) neither has ever used the Homesellers Exclusion in the past.
This option is also incorrect. While there are limits on using the exclusion multiple times, it does not disqualify individuals who have previously utilized the Homesellers Exclusion from claiming it again as long as they meet the necessary ownership and occupancy requirements.
D) they have owned and occupied the house for at least 2 of the previous 5 years.
This option is correct. The IRS stipulates that to qualify for the capital gains tax exclusion, sellers must have owned and used the property as their principal residence for at least 2 out of the last 5 years prior to the sale.
Conclusion
The requirement that the couple must have owned and occupied their home for at least 2 of the last 5 years is the critical factor for qualifying for the capital gains tax exclusion. All other options fail to meet the established criteria set by federal tax law, emphasizing the importance of the specified ownership and occupancy period.