After selling their principal residence, what amount of profit will Andrew and Bethany have to pay capital gains tax on?

After selling their principal residence, what amount of profit will Andrew and Bethany have to pay capital gains tax on?

• A. $100,000
• B. $250,000
• C. $500,000
• D. $600,000

Answer: (A)

When individuals sell their principal residence, they may be eligible for a capital gains tax exclusion. For single taxpayers, the exclusion is up to $250,000 on the gain from the sale of a primary home. For married couples filing jointly, this exclusion increases to up to $500,000. In this scenario, if Andrew and Bethany are married and filing jointly, they could potentially exclude gains up to $500,000. Therefore, if the amount of profit from the sale of their principal residence is $600,000, they would subtract the exclusion amount and would then have $100,000 subject to capital gains tax. Thus, they would only have to pay capital gains tax on the amount exceeding the exclusion, which in this case is indeed $100,000. This reflects their taxable gain after applying the exclusion, illustrating how the capital gains tax works for married couples selling their primary home, effectively shielding a large portion of their profit from taxation.

When individuals sell their principal residence, they may be eligible for a capital gains tax exclusion. For single taxpayers, the exclusion is up to $250,000 on the gain from the sale of a primary home. For married couples filing jointly, this exclusion increases to up to $500,000.

In this scenario, if Andrew and Bethany are married and filing jointly, they could potentially exclude gains up to $500,000. Therefore, if the amount of profit from the sale of their principal residence is $600,000, they would subtract the exclusion amount and would then have $100,000 subject to capital gains tax.

Thus, they would only have to pay capital gains tax on the amount exceeding the exclusion, which in this case is indeed $100,000. This reflects their taxable gain after applying the exclusion, illustrating how the capital gains tax works for married couples selling their primary home, effectively shielding a large portion of their profit from taxation.