on november 1, year 1, jamie (who is single) purchased and moved into jamie's principal residence. in the early part of year 2, jamie was laid off from her job. on february 1, year 2, jamie sold the home at a $60,500 gain. jamie sold the home because jamie found a new job in a different state. how much gain, if any, may jamie exclude from gross income in year 2?

According to IRC section 121, a taxpayer may exclude up to $250,000 ($500,000 for some taxpayers filing a combined return) of the gain from the sale (or exchange) of real estate that they had owned and used as their primary residence for at least two of the five years prior to the sale. A taxpayer is only permitted to use the entire exclusion once every two years.

The amount from the gain that Jamie may exclude from her gross income in year 2 will be calculated thus:

as given November 1 purchase home February 1 sold

so, we know here that Maximum exclusion will be

= $250,000 × 3/24

= $31,250.

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