Constanza's realized gain of $262,500 exceeds the $121 exclusion amount of $250,000 C's recognized gain is $12,500.
Explanation:
Realized gain arising because of sale of house is subjected to tax. Under section 121 exclusion relief is available from recognition of gain. A tax payer can exclude gain up to $250,000 to avail the exclusion, the property should be used as principal residence for at least two years by the taxpayer.
The above provision is waived off when there is change of employment, in that case partial exclusion will be taken into consideration.
In given case, sale of C's principal house qualifies for $121.Compute C's realized, and recognized gain are attached.
As, the realized gain of $262,500 exceeds the $121 exclusion amount of $250,000 C's recognized gain is $12,500.
