Melissa, age 58, marries Arnold, age 50, on June 1, 2017. Melissa decides to sel
ID: 2581635 • Letter: M
Question
Melissa, age 58, marries Arnold, age 50, on June 1, 2017. Melissa decides to sell her principal residence on August 1, 2017, which she has owned and occupied for the past 30 years. Arnold has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the sale of her residence in January 2015 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Arnold’s gambling debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?
Explanation / Answer
Yes, Melissa can elect the § 121 exclusion on the sale of her residence.
§ 121 exclusion is $250,000 and (up to $500,000 for joint filers) but in the given case, inspite of filling joint return, maximum § 121 exclusion is $250,000 instead of $500,000 because Arnold is not eligible for exclusion as he has occupied the residence for the minimum period of 2 years.