did your spouse live in it for 2 years (730) days in the 5 years before the sale and your spouse did not exclude gain from another residence sale in the two years before this sale. if yes, you get the full $500K exclusion. the problem is you didn't report the sale showing the exclusion on your tax return. if you paid for audit defense use it. otherwise amend 2018 showing the sale, cost, and indicate by answering the questions that you get the full exclusion. send the amended return with the notice and a letter of explanation to the address in the notice. the letter should include an explanation somewhat like the following. similar wording should be on the 1040-X. dear Sir or Madam: enclosed is form 1040-x with amended schedule d and form 8949. the home sale qualifies for the maximum exclusion, so there is no taxable gain. Please adjust your records accordingly. sign and date the letter. mail by a method where you can track it or get proof of delivery.
