At the end of 2009, Mr. Vaughn sold both his city home and his summer cottage. Every year he has spent at least a portion of the year living in each of the two locations. When he is not residing in these properties they are left vacant. Relevant information on the two properties is as follows:
City Home Cottage
Date acquired                        1993                          1993
Cost                                        $264,000                    $36,000
Gross proceeds from sale    528,000                     330,000
Real estate commissions      32,000                        16,000
Mr. Vaughn wishes to minimize any capital gains resulting from the sale of the two properties.

Required:

Describe how the residences should be designated in order to accomplish Mr. Vaughan’s goal. In addition, calculate the amount of the gain that would arise under the designation that you have recommended.