Melissa, Age 58, Marries Matt, Age 50, on June 1

question 221

Essay

Melissa, age 58, marries Matt, age 50, on June 1, 2019. On August 1, 2019, Melissa decides to sell her principal residence, which she has owned and occupied for the past 30 years. Matt has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the
sale of her residence in January 2017 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Matt's outstanding debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Matt if they file a joint return?

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