Being newly wedded, my wife is selling the home she lived in since 2004 using homeowner financing. Does Section 121 exclusion apply and do we report received payments?

[stevebar11]

We received a down payment and 6 of 36 monthly payments.  

[Anonymous_]

See https://www.irs.gov/publications/p523#en_US_2022_publink100011878

TurboTax can handle this scenario.

[Opus 17]

Yes, she can still use the capital gains exclusion.

Yes, Turbotax can handle an installment sale.  The interest is taxable income, and any gain after the exclusion is taxable gain, but the exclusion on the gain does not apply to interest.  

What I can't tell you because I haven't used this part of the program, is how it all gets reported.  If you need more specific answers about how the program works, maybe someone else can provide them.  

[Carl]

Being newly wedded, my wife is selling the home she lived in since 2004

Since she is the one who lived in it as your primary residence for at least 2 of the last 5 years she owned it, counting back from the closing date of the sale, she will qualify for a $250K capital gains tax exemption on your joint tax return. (Assuming you were married in 2022 or earlier.)

using homeowner financing.

I assume you mean this sale is seller financed. Make absolutely certain you have all your ducks in a row on the legal and paperwork front. From what I've seen in the past with seller financed loans, the chances of having to foreclose on the property over the next two years is in excess of 50%.  Having to foreclose within the next 5 years is more than 90% probability. Hopefully, that doesn't happen. But don't count on it to supplement your monthly income.

Does Section 121 exclusion apply and do we report received payments?

The exclusion of $250K definitely applies to her, since I"m betting it was her primary residence for at least 2 of the last 5 years she owned it. But the additional $250K exclusion for you (her spouse) most likely does not apply, if it was not also "your" primary residence for at least 2 of the last 5 years she owned it.

[Anonymous_]

As an afterthought, @stevebar11, you might want to elect out of installment sale treatment unless there is non-excludable gain.

Seek guidance from a local tax professional.

[stevebar11]

Thank you for your words of wisdom. 

[stevebar11]

Thanks for your inputs.

[stevebar11]

Thanks. I plan on using Turbo Tax support.

[Mike9241]

if you do elect out of the installment sale reporting. the interest you collect each year is still reportable