Question 78

They have owned and occupied the house for at least 2 of the previous 5 years.

To qualify for the federal capital gains tax exclusion of up to $500,000 when selling their principal residence, the couple must have owned and occupied the home for at least 2 of the previous 5 years.

A) at least one of them has reached the age of 65.

This option is incorrect because age is not a requirement for the capital gains tax exclusion. The tax-free benefit applies regardless of the owners' ages, as long as the ownership and occupancy criteria are met.

B) they buy a replacement home of equal or greater value than the one being sold within a year.

This option is also incorrect. While buying a replacement home can be a strategy in real estate transactions, it is not a condition for the capital gains tax exclusion. The exclusion is determined by ownership and occupancy, not by the purchase of another home.

C) neither has ever used the Homesellers Exclusion in the past.

This option is misleading. While it is true that the exclusion cannot be used again if it has been used within the last two years, the statement does not provide a necessary condition for claiming the exclusion. Therefore, it does not apply to the requirements for the tax-free treatment of capital gains.

D) they have owned and occupied the house for at least 2 of the previous 5 years.

This option is correct as it directly addresses the criteria set by the IRS for the capital gains tax exclusion. The couple must meet the ownership and occupancy requirements to benefit from the tax-free exclusion of up to $500,000.

Conclusion

The correct answer is definitively right because it encapsulates the primary requirement for the capital gains tax exclusion, which is the ownership and occupancy duration of the residence. All other options fail to meet the criteria set forth by the IRS, either introducing irrelevant conditions or misinterpreting the requirements for the exclusion.