Ike and Tina married and moved into their new home (purchase price $800,000) 18 months ago. They are thinking of selling the home which is now worth $1,300,000. They plan to reinvest in a smaller home costing approximately $600,000. What should they consider before selling their home?
What will be an ideal response?
Under Sec. 121, if Ike and Tina own and live in the home (their principal residence) for at least two years (in a five-year period), up to $500,000 of the gain on the sale will be excluded from income. No reinvestment is required. It would also be necessary to know the reason that Ike and Tina are considering the sale. If the sale is due to a change in employment, health reason, or unforeseen circumstances, at least partial gain exclusion is available even though they have not lived in the residence for the entire two years.
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