The Franklins have decided to sell the vacation home on the Gulf Coast, instead of renting it to others, for the FMV of $800,000. They have owned the home and used it for vacations since 2019.

How much of the gain on the sale of the home can the couple exclude from gross income in the year the sale is finalized?

Income Tax Information - Robert and Lisa are in the highest federal income tax bracket ( 37% marginal rate). - They also pay state income taxes of 5%. - For personal income tax reporting, Robert has a $700,000 salary. They do not reside in a community property state. Vacation Home-U.S. Gulf Coast Jointly owned; purchased in 2019 - Market value $800,000 - Original mortgage amount $400,000 Current mortgage at 3.75%; monthly payment: $2,908.89 (15 year) Economic Information The couple expects inflation to average 4% annually. The expected stock market returns are 10% annually, as measured by the S\&P 500 Index, with a standard deviation of 15%. Tuition is currently $30,000 per year at the private university. The expected education inflation rate is 5%. The 90 -day T-bill is yielding 1.5%. The 30 -year Treasury bond is yielding 3.5%. Current mortgage rates are 3% for 15 years and 3.5% for 30 years. In addition, closing costs ( 3% of the mortgage) will be paid at closing and not financed