Hello,
Great questions and the answers depend on a few things.
Regarding the proceeds from the home sale, the answer depends on if you sold the home for a gain or a loss and if the home was used as your main home or investment property. Assuming you sold the home for a gain and if this is your personal resident, not investment property or a rental, 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.
Qualifying for the Exclusion
In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.
If you receive a 1099-S for this transaction you should include this on your return and follow the instructions in Turbo Tax to determine if you sold the home for a gain or loss and if any part of the gain is taxable. As long as the gain is below the amounts mentioned above and you qualify for the exclusion you will not owe any taxes on the transaction.
When you are determining your total gain or loss on the sale you can factor in capital improvements made on the home.
- Capital improvements add value to your home, prolong its life, or give it a new or different use.
- They don't include expenses for routine maintenance and minor repairs, such as painting.
- Examples of improvements are a new roof, a remodeled kitchen, a swimming pool, or central air conditioning.
- You add these expenses to your original cost to increase your adjusted basis (which in turn decreases the amount of gain on a sale).
Closing costs that can be deducted in the year they are paid are:
- Origination fees or points paid on the purchase
- Mortgage Insurance (PMI)
The following closing costs are some of the expenses that can be deducted when you sell the home and should be factored into the cost of the home when you are calculating the cost basis (price) of the home
- Title insurance
- Recording fees
- Title and survey fees
- Transfer fees
Hope this helps. Turbo Tax does a great job at walking you through these calculations so don't worry if it seems like a lot.
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