Deferred capital gains tax and home sale cost basis

[eliot]

We are determining the adjusted cost basis for a home we sold last spring. Our 2119 for our home sale in 1998 shows a deferred gain of $30,000. That amount represents the gain from sale minus the sales costs. However, it does not represent the amount we had invested in the property. Can we now use that amount we had invested to reduce the deferred gain from that prior year to reduce our cost basis to be reported this year?

[RobertG]

Your basis in the property will include your capital improvements over the years, and increasing the basis will reduce the gain.

If you want to check it in Turbotax, use the "sale of home" interview in the Other Income section.  

You are first asked for selling price and selling expenses.  You are then asked for your cost basis; click the "Easy Guide" icon.  This will give you a detailed interview on adjustments to cost basis (improvements, closing costs, etc.)  One of the questions is "did you ever sell a home before this?"  

If you say yes, you get taken to a screen to add your prior rollover information.  (Also a note that it only applies to gain postponed from a home sold before 1997.) 

This question was previously answered by Opus 17

[eliot]

Thanks. 

In Turbo tax, when I say "yes" to a previous sale, it asks for the "gain from the prior sale." Our 2119 from that year states the gain was $30K. However, that amount does not take into account the amount that we had invested into the property. So I am wondering if I determine the "gain from prior sale" based on what is reported on the 2119, or can I now use what was invested in the property back then (I kept the records) to determine the actual gain?

Thanks.  

[NCperson]

Whoa - let's go all the way back to 1998.

You state you have a 2119 form from 1998 that shows a deferred gain from 1998. But how can that be when Form 2119 was no longer used in 1998.  See the link below.

https://www.irs.gov/pub/irs-prior/p523--1998.pdf

look at the right side and "important changes" 

the laws in 1998 are the same as they are today.  The first $250,000 of gain is tax free; end of story.   what occured in 1998 is a moot point and has no bearing on current taxes.

or did you mean you sold the home in 1997 and reported it in April 1998 tax forms? the law went into effect on May 7, 1997, so any home sold after that date is subject to the $250,000 / $500,000 exclusion.

What is the EXACT date you sold the home in 1997 / 1998???

https://www.irs.gov/pub/irs-prior/p523--1997.pdf

What is the EXACT wording of the question TT is asking you about a prior sale as I do not think the sale for 1997/ 1998 may not have anything to do with the reason TT is asking? 

[NCperson]

did you receive a 1099-S on the current sale?  

and was the gain less than $250,000 (Single) / $500,000 (joint)? 

[eliot]

My mistake. It was 1997, and the transaction date was June 30. 

[NCperson]

then there is no impact on the 1997 sale now.  The laws changed effective may, 1997 and your gain was tax free at that time.  the 2119 form doesn't mean anything as it did not have to be filled out.  you are 'free and clear'

So what is TT asking about your 'prior sale' - it has nothing to do with 1997.

again, did you receive a 1099-S?

and was your gain less than $250,000 ($500,000 if married).  If so, there is no capital gains tax due.  it's that simple. 

read this article - it's why I am asking these questions: you may not have to report the sale at all. 

https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6t... 

[eliot]

Thanks. I did receive a 1099-S for this year's transaction, none prior. 

[Mottt]

What is the list of deductible items for the sale of a vacation home

[KarenJ2]

According to  the IRS, Publication 551, Basis of Assets.  Please see pages 4 and 5.

Increase the basis of any property by all items properly added to a capital account. These include the cost of any improvements having a useful life of more than 1 year. Rehabilitation expenses also increase basis. However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis.

Increases to Basis

Capital improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures Casualty or theft loss deductions and insurance reimbursements Certain vehicle credits Assessments for local improvements: Water connections Sidewalks Roads  Legal fees: Cost of defending and perfecting a title, zoning costs.