valuation

capital gain

A capital gain is the profit from selling a capital asset, such as real estate, for more than its adjusted basis. The gain equals the amount realized (sale price minus selling costs) minus the adjusted basis. Gains on assets held more than one year are generally taxed at lower long-term rates. Some gains on a principal residence may be excluded, and 1031 exchanges can defer gains on investment property.

Exam tip: Remember the formula: amount realized minus adjusted basis equals gain. Adjusted basis is cost plus capital improvements, minus depreciation taken.
Example: An investor bought land for $100,000 and sells it for $160,000 with $10,000 in selling costs. The capital gain is $150,000 − $100,000 = $50,000.

1. Under IRC Section 121, a single homeowner may generally exclude how much capital gain on a primary residence?

Answer & explanation

Answer: C. Section 121 allows up to $250,000 exclusion for a single filer ($500,000 married filing jointly) on a primary residence used 2 of the last 5 years.

Related terms & state variants

1031 exchange adjusted basis basis principal residence exclusion

Sources

Source verification pending. Confirm current requirements with your state regulator.

Last verified: 2026-10-23