Leticia and Stephanie Sims purchased a home in Spokane, Washington, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of year 5, when they sold the home for $700,000.
a) What amount of gain on the sale of the home are the Sims required to include in taxable income?
b) Assume the original facts, except that Leticia and Stephanie live in the home until January 1 of year 3, when they purchase a new home and rent out the original home. They finally sell the original home on June 30 of year 5 for $700,000. Ignoring any issues relating to depreciation taken on the home while it is being rented, what amount of realized gain on the sale of the home are the Simses required to include in taxable income?
c) Assume the same facts as in part (b), except that the Sims live in the home until January of year 4, when they purchase a new home and rent out the first home. What amount of realized gain on the sale of the home will the Sims include in taxable income if they sell the first home on June 30 of year 5 for $700,000?
d) Assume the original facts, except that Stephanie moves in with Leticia on March 1 of year 3 and the couple is married on March 1 of year 4. Under state law, the couple jointly owns Leticia’s home beginning on the date they are married. On December 1 of year 3, Stephanie sells her home that she lived in before she moved in with Leticia. She excludes the entire $50,000 gain on the sale on her individual year 3 tax return. What amount of gain must the couple recognize on the sale in June of year 5?