The Franklins have decided to sell their primary residence, for the FMV of $1,384,258. They originally purchased the home for $360,000. How much of the gain from the sale can they exclude from income assuming they file a joint income tax return in the year of the sale?

Primary Residence Purchased in 2007 Jointly owned (joint tenants with right of survivorship) Market value $1.3 million Original mortgage amount $300,000 Current mortgage at 6% interest; monthly payment: $1,798.65 (30 year) 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. 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