Reporting of Capital Gains on Home that is not Military Home of Record

[rob171]

I am Active Duty Military of over 17 years with Home of Record Residency in Pennsylvania. In 2017, my wife and I purchased a house in Washington as part of our Permanent Change of Station (PCS). In 2022, we PCS'ed to Kentucky and sold the house with Capital Gains that do not exceed the $500K exemption for married, filing jointly. I figured out how to report the Capital Gains on the Federal Return and receive the exemption. Cool, no issues there.

However, when I go to file my Pennsylvania Return, it prompts me for the data for the sale of the house in Washington. This was the first and only time we have ever purchased and sold a house so this is new to us. We are confused as to why the Pennsylvania Return wants to ingest this data.

Troubleshooting Questions: Do I exclude the information on the Federal since it is not taxed in Washington? Do I file the Federal separately from the Pennsylvania instead of together? Did I miss attribute/select a button within the software?

Any guidance on how to address this issue and proceed with filing both returns would be greatly appreciated. Thank you!

[MaryK4]

If you reported the  gain on the sale, you will be taxed on the gain.  You only have to report the sale if the exclusion applies if you received a 1099-S for it.  You should have entered it in the Sale of Home section of TurboTax, and it gets reported to the IRS by an entry on the Schedule  D but there should not be income shown.  Because Pennsylvania is asking about the sale, I suspect you may have entered it incorrectly. 

Use these steps to see your return, How do I preview my TurboTax Online return before filing? and check to see if the income is included on your 1040.

Generally, homeowners who owned and used their homes as principal residences for at least two of the five years prior to the date of sale will qualify for exclusion of the gain from the sale of a personal residence from PA taxable income.

[rob171]

@MaryK4I appreciate the insight but if I filled it out incorrectly, I am even more confused. The 1099-S form I received from the sale from the title company does not look like the standard IRS form I can pull off IRS website.

On my 1099-S, I have a Total Consideration block with the amount we received from the sale with 100% percentage of ownership to the seller filled out. The Gross Allocated Proceeds block is empty. None of the boxes on the 1099-S are checked.

I guess the confusing part of this that the Selling Price Block in the Sale of Home Section should(?) be the total price of the sale and the Sales Expenses are all of the commissions, fees, etc (?). I do not understand how those numbers match up to the 1099-S, if the Total Consideration is what we received and the Gross Proceeds is empty.

[MaryK4]

This sounds like a modified statement.  It sounds like a form that is used if there are multiple owners of the property- if you look at the 1099-S it is more along the lines of one for a single owner (and it is what the IRS requires to be reported)- but when the filer has more than one owner, they have to allocate the information.  (We get questions on how to report in cases where the person who received the 1099-S only receives a portion of the total, and the form you received would be appropriate in these situations). The amount of the total compensation is analogous to the gross proceeds for you as single owner.

The important thing to know is the information of the calculation is not reported to the IRS if you are able to exclude the gain, it will be on a worksheet that you keep for your records.  (You will be able to see this in your TurboTax documents.)  @rob171