Multiple Choice Question

Daniel, a single taxpayer, was given a house by his parents several years ago. He has used the home as his principal residence since it was given to him. Daniel's basis in the home was only $$65,000.$ Due to the expansion of the city, he was able to sell the house for $$320,000.$ How will this transaction be treated for tax purposes?

The $$255,000$ gain is classified as a long$-$term capital gain taxed at preferential rates.

The $$255,000$ gain is excluded from taxation because it qualifies as a primary residence.

The first $$250,000$ of the gain can be excluded and the remaining $$5,000$ gain will be treated as ordinary income.

The first $$250,000$ of the gain can be excluded and the remaining $$5,000$ gain will be treated as a long$-$term capital gain.