One of your clients, Jill Jones, age 56, married Jack Judd, age 53 on June 1, 2021. After living with Jack for the past two months, in her principal residence, Jill decided to sell her house on August 1, 2021. Prior to her marriage to Jack, Jill lived in this home for the past 30 years, with her first husband Michael, and their three children (who are all now adults). Jill currently owns the house in fee simple, with no lien or deed restrictions. Jill and Michael originally bought the house for $100,000. No improvements have been made to the house since it was bought. It is currently worth $450,000 on Zillow.

Sarah (Jack's ex-wife) died six months prior to Jack's marriage to Jill. Sarah used the Sec. 121 elections on the sale of her principal residence in January 2020 to exclude the full amount of her realized gain of $123,000. Sarah owned the property in fee simple, with no lien or deed restrictions. Jack and Sarah had no children during their marriage.

1. Can Jill elect the Sec. 121 exclusion for tax reporting purposes on the sale of her house?

2. What is the maximum Sec. 121 exclusion available to Jill and Jack if they file a joint return?

3. With the passage of the TCJA, in December 2017, the CARES Act, in March 2020, and ARP Act, in March 2021, is it better for Jill and Jack to rent or buy another house after the closing on Jill’s principal residence?

Please reference IRC Sec. 121; Publication 523; & Reg. Secs. 1.121-1 - 4

Answer rating: 100% (QA)

1Jill can elect the Sec 121 exclusion for tax reporting purposes on the sale of her house Under Sect... View the full answer