The Ownership Test for Excluding Gain on the Sale of a Principal

question 34

True/False

The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned the property for three or more years during the five year period ending on the date of sale.

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Definitions:

Housing Market

The supply and demand for houses, reflected in house prices and rent, and the transaction activity in residential property.

Leverage Ratios

The ratio of loans and other investments to the firm’s capital assets.

Mortgage-backed Securities

Financial instruments created by pooling mortgages and selling the rights to the cash flows from these mortgages to investors.

Secondary Mortgage Market

A market in which mortgages originated by a lender are sold to another financial institution. In recent years, the major buyers in this market have been Fannie Mae, Freddie Mac, and large investment banks.