Ray and Ellie have each owned a principal residence used for more than five years. Ray’s residence has an adjusted basis of $100,000 and a FMV of $325,000, while Ellie’s residence has an adjusted basis of $300,000 and a FMV of $490,000. They plan to marry and will purchase another house.
a. Should they sell their houses before the marriage in order to minimize their taxes?
b. Will your answer to Part a change if the FMV of Ellie’s house is $690,000?
c. In Part b, what tax strategy should Ray and Ellie consider?