What is the tax implication of a home sale if it qualifies for the primary residence exclusion?

When a home sale qualifies for the primary residence exclusion, taxpayers can exclude a significant portion of their capital gain from tax. Under current tax law, if an individual meets certain requirements, they are allowed to exclude up to $250,000 of gain from the sale of their primary residence. For married couples filing jointly, this exclusion can be up to $500,000.

This tax benefit encourages homeownership and allows individuals and families to sell their primary homes without the burden of paying taxes on significant appreciation, as long as they have owned and lived in the property for at least two of the last five years. This exclusion dramatically reduces the taxable income resulting from the sale and can facilitate smoother financial transitions when homeowners decide to move.

Understanding this exclusion is crucial for taxpayers, as it helps them plan their finances and real estate decisions more effectively. The other options do not align with the current tax provisions around primary residences, making option B the most accurate choice.