Received letter from IRS that I didn't report income from my home sale in 2017. I bought a new house with proceeds, which were less than $250k. How do I respond?

[JBull]

I received a letter from the IRS saying I didn't report my home sale income in 2017. I bought a new home immediately after the sale. I made less than $250k (filed jointly). What form do I need to send the IRS to show I didn't have income? They said I don't need to file an amended return. Thx!

[dmertz]

Presumably you received a Form 1099-S, otherwise the IRS would not have known that you sold your home and you would have gotten no letter.  Had you entered the Form 1099-S into TurboTax TurboTax would have prepared Form 8949 to calculate the taxable amount of the home sale with the result passing to Schedule D and the result on Schedule D passing to Form 1040 line 13.

The fact that you bought another home has no bearing on the tax treatment of the sale of your previous home.

[BMcCalpin]

"The fact that you bought another home has no bearing on the tax treatment of the sale of your previous home."

Yes, the tax law USED TO BE that when you sold your home you had something like 18 months to put the gain into another home in order to defer the tax on the sale; however, the law has not been like this for a number of years. Now you generally enjoy the possibility of a $500,000 exclusion (married filing joint) or $250,000 (other filing statuses) if you satisfy some basic requirements on how long you owned the home and how long you lived there as you main residence.

You can read more about home sale reporting at the IRS website: https://www.irs.gov/taxtopics/tc701

[JBull]

I do not have that 1099S you referred to, but maybe the IRS received a copy of it from the escrow company.  So is that the document I need to track down and send to the IRS to resolve this issue?  I'm just trying to figure out how to solve the problem at this point.  

THanks for your help/response.

[dmertz]

To make sure that you have all of the correct values, yes, you should track down the Form 1099-S.  You can confirm that the IRS received a copy of this form by obtaining your 2017 Wage & Income transcript from the IRS (which probably also has all of the information from the original Form 1099-S, but you still want to have the original form for your records):

https://www.irs.gov/individuals/get-transcript

What you need to provide to the IRS to establish the taxable amount, though, are the completed Form 8949 and Schedule D that I mentioned previously.

[VolvoGirl]

After you get the 1099-S you probably need to fill out an amended return to include it.  On, I now see the IRS said you didn't need to amend.

And it doesn't matter how much the proceeds you got or what you did with it.  Not even how much mortgage you had.  The tax is based on the Net Profit,  Sales price minus the original purchase price you paid including the mortgage.  

So how much did you sell it for and how much did you pay for it?  On a Joint return you can exclude $500,000 of the profit if you lived in it 2 of the last 5 years on the date of sale.