Bill, a single taxpayer, sells his principal residence in the current year for $300,000. He bought the residence 20 years ago for $105,000 and has lived in it since.

What is the correct tax treatment for this gain?

Question options:

	He has a realized gain of $195,000 but it is not recognized because it is excluded
	He has a realized gain of $195,000 but he may defer recognition of that gain by purchasing a replacement home for at least $300,000.
	none of the above