Capital Gains: Capital Gains & Sale of Residence
Capital Gains: Capital Gains & Sale of Residence is a critical concept in EA Exam Part 1, Income & Assets. This topic covers essential tax principles that frequently appear on the exam. Understanding capital gains & sale of residence is crucial for passing Part 1.
Quick answer
Capital gains questions test whether you can classify a transaction, hold-period it correctly, and apply the right rate or exclusion. On Part 1 you will separate short-term from long-term, net gains against losses in the correct order, and handle the capital-loss deduction limit and carryover.
Capital Gains & Sale of Residence is tested on EA Exam Part 1 (Income & Assets). Primary IRS reference: IRS Publication 523.
About this EA exam topic
Capital gains questions test whether you can classify a transaction, hold-period it correctly, and apply the right rate or exclusion. On Part 1 you will separate short-term from long-term, net gains against losses in the correct order, and handle the capital-loss deduction limit and carryover.
The sale-of-residence exclusion under Section 121 is a frequent topic. Expect the ownership-and-use test (living in the home as a main home for the required period), the difference between the single and married exclusion amounts, and the reduced exclusion for an unforeseen-circumstances sale.
What you'll be tested on
- Short-term vs. long-term classification and holding periods
- Netting capital gains and losses and the annual loss-deduction limit
- Section 121 exclusion on the sale of a main home and its ownership/use test
- Basis adjustments that change the gain or loss
How to prepare
- Drill the netting order: short-term against short-term, long-term against long-term, then across.
- Memorize the Section 121 ownership-and-use timeline and the partial-exclusion triggers.
- Track basis carefully. Many "wrong" answers come from an incorrect basis.
Practice questions for Capital Gains & Sale of Residence
What this topic covers
Capital Gains & Sale of Residence appears in Part 1: Individual Taxation within the Income & Assets domain. VantageEA practice questions focus on how capital gains rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRS Publication 523, IRC §121, IRC §1(h). This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include capital-gains, section-121, sale-of-home, holding-period.
Topic overview
Official IRS sources
Related keywords
Frequently asked questions
What is the Section 121 exclusion?
It lets qualifying taxpayers exclude gain on the sale of a main home if they meet the ownership-and-use test; the exclusion amount differs for single vs. married-filing-jointly taxpayers.
How are capital losses limited?
Net capital losses are deductible against ordinary income up to an annual IRS limit, with the excess carried forward.
Which IRS publication covers this?
Publications 544 and 523 cover sales of assets and the sale of your home.
Continue studying
More Income & Assets topics from Part 1
Interest & Dividends: Interest & Dividend Income
Income & Assets
Other Income: SS Benefits, Alimony, Other Income
Income & Assets
Rental Income: Rental Income & Expenses
Income & Assets
Retirement Income: IRA/Pension Distributions
Income & Assets
Wages & Compensation: W-2 Income & Fringe Benefits
Income & Assets
Passive Activity: Passive Activity Loss Rules
Specialized Returns
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