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zenmit
Level 2

Does partial Exclusion of Gain show income

I'm selling my house this year, after living in it for 11 months.   I'm on schedule to make a profit of $70K.   My issue is that I'm self-employed as a mental health therapist and normally earn about 30K per year.   This has allowed me to use the healthcare marketplace for health insurance while getting a subsidy, because I definitely earn less than $54K per year with my job.   If I didn't get the healthcare subsidy, I would be paying $500-600 per month for health insurance that I rarely use anyway.  I'm concerned that with my house sale, I'm going to have to pay all that health insurance cost back for 2021.  It will be at about $6,000 - $7000.  I definitely qualify for the partial exclusion of gain since I'm moving about 1900 miles away, and there are a few other factors that help me to qualify.  So my question is, with the partial exclusion of gain, will the IRS even consider my house sale as income?   Also, does the partial exclusion waive up to $125K of income from my home sale?  Or does it only tax me on 50% of the income from my home sale (for example, if my 1099-S shows a profit of $70K, does the IRS tax me on $35K, or does it not tax me at all if I qualify for the exclusion)?  

1 Reply
DawnC
Employee Tax Expert

Does partial Exclusion of Gain show income

Only the taxable gain that is not excludable will be included in your Adjusted Gross Income for purposes of determining what ACA subsidies you qualify for.  

 

Generally, you must own the home and live in it for at least two years to be able to qualify for any portion of the home gain exclusion.    There are some exceptions, however.  You can enter the sale in TurboTax to have TurboTax determine if you qualify to exclude any or all of the gain.    And then delete the transaction before you file since the sale will be reported on your 2021 tax return.   

 

1. If you had postponed gain on the home you sold under the old "rollover" rules, enter here the purchase date of the earlier home which you "rolled into" this home.  If you had rolled over more than one, enter the date of the earliest purchase in the series. Once you have a date more than two years prior to your current sale, though, there will be no tax consequence of entering an earlier date.

 

2. If your spouse died and had owned the property longer than you, enter here the date your spouse purchased the property if your spouse also lived in it as his or her main home during that period.

 

3. If your spouse transferred the property to you (or if your former spouse transferred the property to you incident to divorce), enter the date your spouse (or former spouse) purchased the property.

 

4. If a prior home was destroyed or condemned and the basis of the home you sold depended on the basis of that prior home, enter the date you purchased the prior home.

 

5. You sold the home due to unforeseen circumstances. These can apply to you, your spouse, or anyone else living in the home. Unforeseen circumstances include:

 

 - Change of health

 - Death, divorce, or legal separation

 - Multiple births (twins, triplets, etc.)

 - Change in place (more than 50 miles) of employment

 - Receiving unemployment benefits

 - Change in employment leaving you unable to pay mortgage or basic living expenses

 - Military or foreign service

 - Natural or man-made disaster

 - Act of war or terrorism

 - Condemnation, seizure, or other involuntary conversion

 - Other unforeseen circumstances

 

Active-duty military and foreign service members may be able to look back over a period of time greater than five years. You can read about this exception.

 

For further information and examples, see IRS Publication 523, Selling Your Home.

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You won't pay taxes on the first $250,000 (also known as a gain) you make from the sale of your home. If you're Married Filing Jointly, you won't pay taxes on the first $500,000.

That income is free and clear as long as:

  • You owned the home.
  • It was your main home for two years or more within the five years leading up to the sale.
  • You waited at least two years between selling your primary home and excluding your first $250,000 or $500,000 from taxes. In other words, you may buy and sell as many primary homes as you'd like, but you'll only get this tax benefit every two years.

If the 1099-S was for the sale of your main home, it’s reported under Less Common Income in the Wages & Income section. Here's how to enter the form:

  1. Open or continue your return.
  2. Type sale of home in the Search box.
  3. Select the Jump to link in the search results.
  4. Follow the screens to enter the info from your 1099-S.
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