Capital gains on home sale

[jbjadams]

1. How do I figure actual profit aka taxable gain on the sale of my home?

2. In trying to figure actual profit/taxable gain from the sale of my home.....Can I deduct MY original closing costs when I bought my home, as well as my closing costs when I sell it?

3. What are all the costs I can deduct when I sell my home, so I can figure my actual profit and, therefore, my capital gains tax liability?

[DS30 · Accepted solution]

Yes, your taxable gain would be your net sales proceeds less your adjusted cost basis in your home. (Please note you will not need to report your home sale if you are claiming a home gain exclusion (see below)).

Related to basis in your home -

The adjusted basis of property is usually the original cost of the property adjusted for various items after you acquired it. 

Adjusted basis includes: 

• original cost, including sales tax, purchase expenses, commissions, etc. (from original closing statement, if available)
• permanent home improvements
• nondeductible assessments for improvements (sidewalks, utilities, etc.)
• depreciation claimed or allowable (if you had an office in your home or rented the home)
• casualty and theft losses deducted 

For more details, including a more complete list of additions and deductions to your basis, see IRS Publication 523, Selling Your Home.

You are allowed to deduct from the sales price almost any type of selling expenses, provided that they don’t physically affect the property. Such expenses may include:

• advertising
• appraisal fees
• attorney fees
• closing fees
• document preparation fees
• escrow fees
• mortgage satisfaction fees
• notary fees
• points paid by seller to obtain financing for buyer
• real estate broker's commission
• recording fees (if paid by the seller)
• costs of removing title clouds
• settlement fees
• title search fees, and
• transfer or stamp taxes charged by city, county, or state governments

Just remember that you do not need to enter the sale of your primary residence if:

• You never used your primary residence as a rental or took a home office expense
• You have a loss on the sale of your home (Personal capital losses are not reported on your tax return)
• You did not receive a Form 1099-S and
• You meet the home gain exclusion (see below)

You can take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years. If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. See  Sale of Your Home for more information on the exclusion.

If you still need to enter your sale of your primary residence (which may require an upgrade in TurboTax), please follow these steps:

1. Once you are in your tax return (for TurboTax Online sign-in, click Here), click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Less Common Income”
5. Choose “Sale of Home (gain or loss)” and select “start’
6. You will want to use the "Easy Guide" to determine the adjusted basis on this home 

Say "yes" that you sold your main home and TurboTax will guide you on entering this information.  You will need:

• The date you sold your home and the selling price (from your closing statement)
• The date you bought your home and the purchase price (from your closing statement)
• The cost of any major improvements you made, so we can deduct them for you
• Form 1099-C if you sold your home at a loss (short sale)

Just remember to check the box to have your home sale reported on your tax return but ONLY if you receive a 1099-S

[OCNYETI]

Can I deduct California State Sales Tax I paid on the sale of a home?

[JohnB5677]

Sales Tax can be deducted on Schedule A as an alternative to State taxes.  However, I am no aware of sales taxes being charged on the sale of a home.

[OCNYETI]

This is for California. Besides state tax withholding can I also deduct  agent commissions, title and escrow fees, property tax, ect. I also have my final settlement statement from title company that reflects an amount due to seller which is different then my 1099-S gross amount.

[KathrynG3]

It depends. First, the sale of your personal residence is excluded when the gain is $250,000 or less per taxpayer (married filing joint taxpayers could claim a $500,000 exclusion) and the residence period lasted 2 out of the last 5 years. For what is deductible from the closing costs, the federal tax return must be addressed before determining any California adjustment. 

2019 Publication 523 Sale of Your Home page 8 of 32 provides a list of what can be deducted from fees and closing costs.

See this link for an overview of the federal tax return treatment: I sold my home, what can I deduct?

For the California tax return, your main resources are:

2019 FTB Form 540 Personal Income Tax Booklet, page 41, column 2: "Use Schedule D (540), California Capital Gain or Loss Adjustment, to calculate the amount to enter on line 6....Gain on the sale of personal residence where depreciation was allowable."

FTB State of California Guidance: Income from the sale of your home

2019 FTB Schedule D (540) Instructions 

Per FTB Publication 1001 from 2018, the most recent Publication available from California, page 12:

• Difference between Federal and California Law: "For sale or exchanges after May 6, 1997, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5 year period ending on the date of the sale may reduce the 2 year period by the period of service, not to exceed 18 months."
• What to do for California: "If there is a difference between the amounts excluded (or depreciated, if recapture applies) for federal and California, complete California Schedule D (540 or 540NR). Transfer the amount from California Schedule D, line 12a, to Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 13, column B (if gain is less than federal). Transfer the amount from California Schedule D, line 12b, to Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 13, column C (if gain is more than federal)."

@OCNYETI

[TrishWishes]

It would be great if at least ONE person included in their response HOW to claim the capital gains exclusion in TTO.

[AnnetteB6]

If you owned and lived in the home for at least 2 of the last 5 years prior to the sale of the home, and you are filing a joint return, then up to $500,000 of any gain on the sale can be excluded.  

You may need to enter the details of the sale of your home in TurboTax, but if you qualify to exclude all or part of any gain on the sale of your main home, it will not actually be reported on your tax return or be a taxable transaction.  

Take a look at the following TurboTax article for more information about the home sale exclusion and how to enter the sale of your home into your tax return:  Is the money I made from a home sale taxable?

There will be a link on the page in TurboTax for further information about whether you need to enter any details about the sale into your return.  Follow the instructions in that link to decide what to do next.  

Use the following steps to get started:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “sale of home” and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to sale of home”
• Click on the blue “Jump to sale of home” link

@TrishWishes

[avalis]

I already filed my federal tax return and reported the gain on the sale of my personal residence, which I fully excluded from taxable income because it was under $250,000, or the allowable exclusion.  I had to file a federal return because I received a form 1099-S on the sale.  I had no other taxable income. However, since I had no taxable income on my federal return, am I required to file a California tax return?  In the Franchise Tax Board's website, it says nothing has to be reported if the gain was under $250,000, which it was.  

[Critter-3]

If the sale was reported on a 1099-S the YES you should file both a federal and state return to show you do not owe taxes on the sale to be on the safe side ... otherwise you will have to respond to the notices you will get in a couple of years.  

[Critter-3]

To avoid a state program fee ...  

If you qualify   you can use one of  the 10 IRS FREE FILE options to file a fed & state return for free ... but you must log in thru the IRS site :

https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

 For Filing Season 2021, you must make $72,000 or below to use one of the 10  IRS Free File partner offers.

[Bksevers1]

Hi, I own a home in CA and am going to sell it.  We bought it May of 2020, do I have to have the close be on that day or after to avoid capital gains taxes?  If not, can I sell it a month or so early and not have to pay them?  Also what about the capital gains for the state taxes?

Thank you

Brian S.

[Mike9241]

normally for a married couple to avoid tax on the gain on the sale of their primary residence one or both of them must own it for 2 out of 5 years and both must occupy it for 2 years out of the 5 year period ending on the date before the sale. Neither may have excluded the gain from the sale of another primary residence in this 2 year period. The excludable gain is a maximum of $500,000.  

if these tests are not met, there will be a partial exclusion if any of these safe harbor tests are met:

1) change in place of employment - the new place of employment is at least 50 miles farther from the residence sold than the former place of employment  was

2) health - to obtain, provide, or facilitate the diagnosis, cure, mitigation or treatment of disease, illness or injury of a qualifying individual who lives in the home. a qualifying individual is parent, grandparent, stepmother or father, child, grandchild, stepchild, adopted child, brother,  sister, step or half brothers or sisters, most in-laws, uncle, aunt, nephew, niece or cousin.

moving for general health or well-being reasons does not qualify

3) unforeseen circumstance  - this is a broad category but includes

a) an involuntary conversion of the home

b) natural or man-made disaster, act of war or terrorism resulting in a casualty to the home 

c) death, loss of job, change in employment (that does meet the mileage test) which results in taxpayer's inability to pay basic living expenses

d) divorce or legal separation

e) multiple births resulting from the same pregnancy 

f) another event which the IRS deems an unforeseen circumstance - many times a private letter ruling is sought to ensure the IRS agrees - for this consult a tax pro. 

the partial exclusion is computed

						Taxpayer		Spouse
1)	Maximum exclusion					$250,000		$250,000
2a)	Number of days (or months) used as main home
2b)	Number of days (or months) owned. Use the
	longest period owned by either for both
2c)	Smaller of line 2a or 2b
3)	Number of days (or months) since the last time a
	home sale exclusion was taken. If none skip line 3
	and enter line 2c on line 4
4)	Smaller of line 2c or 3
5)	Divide line 4 by 730 (or 24 if months used)
	round to at least 3 decimal places
6)	Multiply line 1 by line 5
7)	Total of line 6 both columns

[Bksevers1]

Ok, so in plain language, are you saying I have to own the home for 5 years?  We have owned and lived in the home for the two years, come this May, so the way I understand it we would qualify for the exemption and we would want to close on the sale close to or after the original date we bought the house, correct?

Also, what are the rules for CA taxes?

[Anonymous_]

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@Bksevers1 wrote:

.......are you saying I have to own the home for 5 years?  

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No, just two out of the last five leading up to the date of closing.

In general, to qualify for the Section 121 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.

See https://www.irs.gov/taxtopics/tc701