A married couple purchased their residence 5 years ago for $500,000. For 3 of the last 5 years, they rented out the property for income, and lived in the house of 2 of those years. The clients sell the house for $800,000. How much of the gain is taxable?

taxable is $50,000

Explanation:

given data

purchased residence = $500000

sell house = $800000

to find out

How much of the gain is taxable

solution

we know that tax code permits the first $50000 of capital gain from sale of a personal residence to be excluded from tax for married couple

and residence can't rent out for more than 3 years of preceding 5 years

so owner use 2 years of past 5 years

and here

sold in $800000

so gain is = 800000 - 500000 = $300000

and here excluded from tax = $300000 - $50000

excluded from tax = $250000

so taxable is $300000 - $250000

taxable is $50,000