If the closing agent wrote exempt on the 1099-S form, this could mean that the sales price of the house was less than $500,000 and the home was your principal residence, which means that you and your wife may qualify to exclude the gain on the sale of the home. You would be able to exclude up to $500,000 of gain ($250,000 on each of your returns since you are filing separately) if you:
- owned the home at least 2 of the last 5 years before the date of sale (ownership test)
- used the home as a primary residence at least 2 of the last 5 years before the date of sale (use test)
- haven't excluded the gain from another home sale in the last 2 years
For both of you to qualify for the full exclusion, only one of you has to have met the ownership test and both of you have to have met the use test.
To report the sale of the home and the exclusion in TurboTax:
- log into your TurboTax account
- on the Tax Home screen, click Income & Expenses and then Add/Edit or Work on Other Income
- on the income summary screen, scroll down to Less Common Income and click Start or Edit next to Sale of Home
- go through the prompts to provide information about the home that you sold and the information from the 1099-S and settlement paperwork
- on the screen that asks if you lived in the property at least 24 months out of the last 5 years, select the appropriate answer (these months do not need to be consecutive)
- continue through the remaining screens to report the sale of the home and exclusion if you qualify
