How much gain must Susan recognize from the sale of her residence?

To determine the amount of gain Susan must recognize from the sale of her residence, it's essential to understand the tax laws regarding the sale of a primary residence, particularly the home sale exclusion. Under current tax regulations, an individual can exclude up to $250,000 of capital gains from the sale of their primary residence if certain conditions are met, including ownership and use tests over a specified period of time.

When Susan sold her residence, it's crucial to identify the gain realized from the sale. If the selling price of the home exceeds the adjusted basis (usually the purchase price plus any capital improvements minus depreciation) by a certain amount, that excess constitutes the capital gain.

If Susan's total gain from the sale of her residence is calculated at $342,500, she can apply the exclusion amount. After applying the individual exclusion of $250,000, she is left with a taxable gain of $92,500. This amount is recognized as gain that must be reported on her tax return, aligning with the fact that she has utilized her exclusion completely.

Therefore, recognizing $92,500 as taxable gain reflects the proper application of the tax law regarding gains on the sale of a primary residence, recognizing that she benefited from an exclusion but still has a remainder that