topic My boyfriend and I bought a house in '19, he claimed the house on taxes. Sold the house in 2020 in Deductions & credits

My boyfriend and I bought a house in '19, he claimed the house on taxes. Sold the house in 2020

millera52 — Thu, 17 Dec 2020 16:50:41 GMT

We put the majority of the money we made into our new home that we bought together. Will we have to pay capital gains on that money made since it was reinvested into our new home? Do repairs on the new home count as reinvestment?

Re: My boyfriend and I bought a house in '19, he claimed the house on taxes. Sold the house in 2020

xmasbaby0 — Thu, 17 Dec 2020 17:03:53 GMT

Money you paid for another home is irrelevant--that has been irrelvant since 1997 as a way to avoid capital gains.

SALE OF HOUSE

If your gain was more than $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return. Whether you re-invested the gain in to another house is irrelevant. If you have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

If you are using online TT, you need Premier or Self-Employed software to report the 1099-S
.https://ttlc.intuit.com/questions/1901135-i-sold-my-home-at-a-loss-is-this-deductible

Re: My boyfriend and I bought a house in '19, he claimed the house on taxes. Sold the house in 2020

millera52 — Thu, 17 Dec 2020 17:30:53 GMT

Our real estate agent explained that a little differently. Regardless, since he claimed the house on his 2019 taxes would he be the one to claim the capital gains for 2020 taxes?

Re: My boyfriend and I bought a house in '19, he claimed the house on taxes. Sold the house in 2020

Opus 17 — Thu, 17 Dec 2020 17:59:20 GMT

@millera52 wrote:

Our real estate agent explained that a little differently. Regardless, since he claimed the house on his 2019 taxes would he be the one to claim the capital gains for 2020 taxes?

No.

First of all, if your agent told you that you could defer the tax on the gain from property A by buying property B, their knowledge is 22 years out of date. The ability to defer the gain is only available for certain commercial property and is called a like-kind exchange, and even if this was commercial rental property, you have to make the arrangements at the time of the closings, thinking about it later is too late.

If you are both on the deed of property A, then you are 50/50 owners, unless you have specific paperwork that says differently, and the IRS will expect each of you to report and pay capital gains tax on half the gain. The way you would do this in Turbotax is for each of you to report your cost as half the cost, and the selling price as half the selling price.

For your deductible items like mortgage interest and property taxes, you should also have deducted them according to who actually paid the costs. If you split the costs 50/50, you should have taken the deductions 50/50 as well, but if your BF really paid all the mortgage interest and taxes, it would be fine for him to deduct the entire amount. The same thing is true of the mortgage interest and property taxes that you will report on your 2020 return for both property A and property B.

Your "cost basis" used to figure your taxable capital gains on property A, is the price you originally paid, plus certain of your closing costs, plus the cost of any permanent improvements you made to property A. (Improvements made to property B will adjust the cost basis of property B, which may help you when you sell that property.). You can also reduce your selling price (or include in your cost basis, which has the same effect) for property A, some of your closing costs when selling, like your real estate commission. Basis adjustments are listed on page 8 here, https://www.irs.gov/pub/irs-pdf/p523.pdf

For example, suppose you bought the house for $100,000, had $6000 in closing costs, invested $10,000 in a new kitchen, and sold the house for $180,000 with a $10,000 commission. Your overall cost basis is $116,000 and your selling price is $170,000. Each of you would report sale of an asset costing $58,000 and selling for $85,000, creating a taxable capital gain of $27,000 for each of you.

If your BF reports all the gain, the IRS may not catch you, but if they do, they can assess back taxes and penalties against you for failing to report your share. It is also possible that, depending on your individual tax situations, and how long you owned property A, that you might pay less tax overall by each reporting half the gain, instead of one person reporting it all.