Paper , Order, or Assignment Requirements

Question 1: A married couple has lived in their home (principal residence) for three years and qualifies as a §121 exclusion. The couple decides to move to another state where the husband has recently started a new job, and purchase a new principal residence. The couple decides one year later to move into a bigger house across town. Will the sale of their old residence qualify under §121? Justify your answer.

I have written this so far, “Section 121 states that the income or gain from the disposition of home will be excluded from the gross income if taxpayer owns and occupy the property as the principal residence for two years out of the five years immediately before the sale. However the occupancy and ownership need not to be concurrent. The amount of gain which will be excluded if the taxpayer fulfills the requirement is $250,000 ($500,000 for certain married taxpayers).

Section 121 clears out that if any taxpayer has more than one home then he/ she can exclude gain only from the sale of the main home. Taxpayer must include in income the gain from the sale of any other home. If he/shehas two homes and lives in each of them then the main home is ordinarily the one he/she lives in most of the time during the year.

Since the condition of two years is not fulfilled in the new principle residence because after one year of the purchase they have shifted to new home thus Section 121 will not be applicable.”