sell of residence

[Kimilla]

I sold my home of 31 years in 2020 and purchased another. Both primary residence. I have none of the 1988 paperwork for original purchase. I know the month/year/price. I refinanced multiple times and when sold I still had 21 years on the last loan. I am single and understand the cap of 250K on capital gains. I sold the property and netted 281K. I did 47K of improvements over the years so I thought the overage of 31K would be eliminated. Working through the program  I don't see where to enter original price in 1988. It's telling me I owe thousands. So I'm not understanding the capital gains correctly? Do I owe from original price to sell price with no consideration of all the loans in between and the final balance still owed? I took 10K out in cash once for a new roof and later another 38K for the divorce payout. The rest of the refinances were chasing lower rates. I don't have any paperwork for any of the refinancing.

[Opus 17]

You are correct.  Your gain is the difference between the selling price and the purchase price, regardless of loans.  If you net less money than the purchase price due to a loan, that just means you got some of the money out early.

(Let's take the simplest case.  You buy a house for $100,000, all mortgage, nothing down, on Monday.  On Tuesday you refinance for $110,000 and pocket the $10,000 extra cash.  On Wednesday you sell for $120,000.  Your gain (profit) is still $20,000, even though your proceeds are just $10,000, because you got the other $10,000 out early via refinance. )

Your gain is the difference between the purchase price and the sales price.  The sales price is recorded in your county records office if you have no idea.  If you lived in the home as your main home, the first $250,000 of your gain is tax free and the rest is taxed as long term capital gains.  Even if the tax is more than the proceeds, because that just means you took the gain out early in the form of cash out refinances.

If you are in the section for "sale of your home" the program should ask for the sales price, and it also has a smart guide module to help you calculate the cost basis by adding improvements and other items to the purchase price. 

[Kimilla]

Well that's a bummer. I did improvements but not enough to cover the difference. Still looking at taxes on 42K. So to be clear none of the escrow costs to purchase in 88 can be deducted or any of the cost of the multiple refinances? I would only be able to guess at the costs. Why is the program asking for the escrow costs to sell it? Does that get deducted?

Thank you so much

[Opus 17]

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@Kimilla wrote:

Well that's a bummer. I did improvements but not enough to cover the difference. Still looking at taxes on 42K. So to be clear none of the escrow costs to purchase in 88 can be deducted or any of the cost of the multiple refinances? I would only be able to guess at the costs. Why is the program asking for the escrow costs to sell it? Does that get deducted?

Thank you so much

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"Escrow" costs are never deductible because money you place in escrow is still your money until it is spent on a tax or insurance bill.  If you live in California, I am making a distinction between "closing escrow" (which would be closing costs) and putting money in for future expenses. 

Some closing costs can be added to your adjusted cost basis, they are listed on page 8 here.

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

You can include the similar costs at each refinance if you can prove you paid them.

Certain selling costs can be deducted from the selling price, such as the real estate commission.  They are listed on line 2 of the worksheet on page 12 of the same publication.  Repairs are not an adjustment because you are normally expected to keep your property in repair and repairs aren't deductible, but "staging" can be used as an "advertising expense" as long as you did not make changes to the house.  (If staging included renting furniture, that's an adjustment, but if it included painting, that's not an adjustment.)

Note: if you received a 1099-S at the closing, you shouldn't actually adjust the selling price in Turbotax, because the IRS will be trying to match the 1099-S to your tax return.  So you can include the selling costs as adjustments to increase your basis, it has the same effect in the end. 

[Mike9241]

netting $281 and what the sales price is are two different numbers.  you could sell for $700K with a $400K mortgage and $19K settlement costs and expenses. thus you net $281K but for the selling price you use $700k   so it's not what you netted but the gross sales price  (what should be on 1099-s) that is used to figure gain/ loss(non-deductible).  then there are the closing costs/settlement charges to seller  (excludes things like real estate taxes/escrow, HOA fees, mortgage, interest due,.  so gain is selling price less settlement costs less your basis.  

examples of settlement costs that a seller might pay (be charged on closing statement sometimes referred to as HUD-!

appraisal fee

flood evaluation fee

pest inspection fee

survey fee

various title fees

recording fees

transfer taxes 

inspection fee

brokers commissions

legal fees

home warranty

and there could be others

also watch for settlement costs paid outside of closing that are your expense.

[Kimilla]

Should I be concerned I didn't receive a 1099-S only a final closing statement from the escrow company? 

[Opus 17]

No, a 1099-S is only required in certain circumstances.  If the closing agent didn't issue one, it wasn't required. 

[pvwedding]

Can refinance charges such as Legal Fees, Title Search, Document Preparation be used to affect the adjusted cost basis of my home? TurboTax shows this for the original home purchase but does not clarify that you can or cannot use refinance fees to affect adjusted cost basis. Please clarify to the best of your knowledge.

[Opus 17]

@pvwedding 

Items that can be included in the adjusted cost basis are listed in IRS publication 523 beginning on page 8.

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

Sometimes TurboTax is not clear on this. Depending on what version of the program you are using and what section you are working on, you can be asked for your cost when the program should be asking for your adjusted cost basis. In other sections of the program, there is a calculator to help you calculate your adjusted cost basis, but it may not list all the eligible items. If you can calculate your own adjusted cost basis, you should use that.

[Critter-3]

Ok ... lets take this down to the brass tacks ...

Purchase price + cost to buy + improvements + cost to sell = basis

Selling price - basis =  capital gain 

If the capital gain is 250K or less then the sale doesn't need to be reported on the income tax return at all EXCEPT  if a 1099-S was issued at the closing.  So review the pile of paperwork that was sent to be sure that one was not issued.   They should have asked you about all the cost basis info to determine if a 1099 was required or not.  

[AmeliesUncle]

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@pvwedding wrote:

Can refinance charges such as Legal Fees, Title Search, Document Preparation be used to affect the adjusted cost basis of my home? TurboTax shows this for the original home purchase but does not clarify that you can or cannot use refinance fees to affect adjusted cost basis. Please clarify to the best of your knowledge.

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Probably not.  Costs incurred solely because of a loan/mortgage do not add to the Basis.