California Real Estate Practice Exam

A single buyer purchased a new residence for $210,000, lived on the property for 3 years, then sold the property for $400,000. How much of his profit is subject to capital gains taxation?

1. $100,000

2. $200,000

3. All

4. None

The correct answer is: $100,000

The correct answer is that none of the profit is subject to capital gains taxation due to the homeowner's exclusion provisions under IRS rules. In California, and according to federal tax laws, if a single individual sells their primary residence, they can exclude up to $250,000 of capital gains from taxation, provided they meet certain ownership and use requirements — specifically, they must have owned and lived in the home for at least two of the five years prior to the sale. In this scenario, the buyer purchased the home for $210,000 and sold it for $400,000, making a profit of $190,000. Since this profit is below the $250,000 exclusion limit, it is entirely exempt from capital gains taxes. Therefore, the correct answer is that none of the profit is taxable, and the previously suggested answer does not align with this tax exemption benefit.