Your clients John and Mary, purchased a home together when they got married in 1977. They purchased the house for $75,000 and have invested $125,000 in the house since they purchased it (giving them basis of $200,000 in the house). They sold the house for $350,000 this year. They come to you to ask if the gain of $150,000 is taxable to them. NOTE: This was their principal residence and they have never sold a home before.

Required:

Prepare a client letter and a research memo on this issue. Your client letter should be prepared as though John and Mary have no tax experience and your research memo should be prepared as though it is being written to your supervisor.