Question regarding irc 121, form 1099-S

[rvr350]

Just sold our home. We are asked to sign a form "Certification for no information" to see if 1099-S will be sent to the IRS. We bought our home for 5 years, lived as primary residence for 4 years, and rented one year prior to sale. We were expecting to utilize the 121 exclusions from capital gains tax, but this certification for no information form asks 7 questions, and one specifically asked if the property has ever been for "rental purposes", which it did. So will the title company generates 1099-S and we have to claim the 121 exception in next year's tax return? 

[AmeliesUncle]

Yes, and yes.

You will owe tax on the depreciation that you were able to claim, but the rest of the gain will be tax-free if the gain is less than the $250,000/$500,000 exclusion amount.

[rvr350]

So in answering “yes” to being the property was used in rental purposes, even though 121 allows such exception to exist, the title company will report the sale.

What is the process in declaring 121 exclusion in filing taxes next year?

i thought the point in 121 exclusion was to prevent the issusance of 1099-S?

thanks.

[AmeliesUncle]

There is a section in the program called something like Sale of Home.

Section 121 is to avoid paying taxes on the sale of your main home.  It has nothing to do with not receiving a 1099-S or needing to report it.  

[rvr350]

So basically the escrow form if filled to be all true will yield no gains from the sale, ie no 1099s generated. Any other cases, including using the 121 exclusions or any loopholes will need to be dealth with in normal tax return season with the 1099s attached. Did i get it right?

we rented the house briefly just prior to sale, and there is a nonqualified loophole that says it is excluded since we lived there prior to renting, but the escrow form simply said "any" rental or business use, therefore the confusion.

[JamesG1]

I think so.  You should report 'yes' and you will receive a 1009-Sale of home to be included on next year's Federal 1040 tax return.

Because you used and owned the property as your principal residence for an aggregated two years out of the 5-year period ending on the date of sale, you have met the ownership and use tests for the exclusion of $250,000/$500,000.

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.  You qualify because you used and owned the property as your principal residence for an aggregated two years out of the 5-year period ending on the date of sale.

For rental property, the law has additional limits on the amount you may exclude. You may not exclude the part of your gain equal to any depreciation deduction allowed or allowable for periods after May 6, 1997.  This means that you may need to recapture and report as income any depreciation deduction you have taken on the rental.

This IRS FAQ appears to address your situation.