Sydney and Kevin were married last year.

They decided to live in Kevin's home after they were

married. Kevin has lived and owned the home for 5 years. Sydney has lived there for 9 months.
They have sold the home because Kevin's job transferred him to another state. Kevin's basis in
the house is $400,000 and the fair market value is $1,000,000. What is the gain that will be
recognized on the sale of the home?

A. $100,000
B. $256,250
C. $412,500
D. $600,000
Answer:B

Each spouse is entitled to a $250,000 exclusion of gain if they meet the ownership and use
rules. Only one spouse is required to own the home for 2 of the last 5 years, however each is
required to use the home for 2 out of the last f years. If the time frame is not met, a partial
exclusion is available if the move was due to job change or other unforeseen circumstances. In
this case, Kevin qualifies for the full $250,000 exclusion. Sydney is entitled to 9/24 of the
exclusion = $93,750. The gain is $1,000,000 - $400,000 basis - $250,000 Kevin's exclusion -
$93,750 Sydney's exclusion = $256,250.

Ben sold some land to his brother Logan on January 1 of the current year. Ben had a basis in
the land of $40,000. Ben sold the land to Logan for $240,000. Logan could not afford to pay for
the land outright so Ben agree to sell the land using an installment sale. Logan will pay $2,000
per month for 10 years plus an applicable rate of interest. Six months after Logan purchased the
land, Logan sold the property for $300,000. How much gain will Ben recognize in the current
year if 12 payments were made?

A. $4,000
B. $20,000
C. $200,000
D. $260,000
Answer: C

Since Ben and Logan are related parties, the entire gain must be recognized in the current year
because Logan sold the property within 2 years. Therefore, Ben must recognize gain of
$200,000. Otherwise, the installment treatment would have been allowed. The installment
treatment would have been: (Total gain / sales price) X payments = Recognized Gain ($200,000
/ $240,000) X $24,000 = $20,000.