Question 78

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 their principal residence, the couple must have owned and occupied the house 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 as age is not a requirement for the capital gains exclusion on the sale of a principal residence. The primary criteria focus on ownership and occupation duration rather than the age of the sellers.

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

This option is misleading; although buying a new home is common, it is not a requirement for the capital gains exclusion. The exclusion is based on the ownership and occupancy period, not on purchasing a replacement property.

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

This statement is incorrect because the exclusion can be used more than once. However, there are conditions related to the timing and frequency of use, but it does not negate the eligibility based on prior use alone.

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

This option is correct as it directly aligns with the IRS requirements for the capital gains tax exclusion on the sale of a principal residence. Both ownership and occupancy for a minimum time frame are essential to qualify for the exclusion.

Conclusion

The correct answer is D because it encapsulates the specific requirements set forth by the IRS for the capital gains tax exclusion, which focuses on the duration of ownership and occupancy of the residence. All other options either introduce irrelevant factors or misstate the necessary qualifications for the exclusion.