Tax treatment for Purchase new Primary residence using HELOC on old home and then sold old Primary Residence

[mikep2345]

Hello,

Home1  ( Primary Residence Jun-2015 to Jun-2023 - lived for about 8 years)
Home2  ( New Primary Residence purchased in Jun-2023 and moved there )

Jun-2015  => Home1 was purchased $400000 and moved into Primary Residence.

Jun-08-2023 => Obtained HELOC (home equity line of credit) $200000 on Home1 to use amount as down-payment for Home2 (New Primary Residence)

Jun-09-2023 => Home2 purchased $850000 (New Primary Residence), using $200000 HELOC amount as down-payment for Home2

In few days, moved into Home2 (New Primary Residence)

Aug-2023 => Sold Home1 (Primary Residence till Jun-2023) in $600000
    => Re-paid HELOC amount $200000 and closed HELOC, and
    =>  $350000 from proceed paid towards principle of Home2

Please help me for questions I have:

1) How to enter transactions in Turbotax to avoid Capital Gains Tax on $200000 proceed on sale of Home1 Primary Residence ?

2) Is HELOC Interest Tax Deductible in this situation?

Appreciate any help.
Thanks.

[MonikaK1]

First question: You don't have to report the sale of Home 1 at all if your gain is less than the threshold amount for your filing status unless you received a Form 1099-S.

If you sold your main home during the current tax year, TurboTax can determine if you need to report the sale on your tax return. Generally, profits of up to $250,000 (up to $500,000 on a joint tax return) don't need to be reported to the IRS. TurboTax can figure this out for you.

To enter the sale of a personal residence in TurboTax Online:

• Click on Federal Taxes
• Click on Wages and Income
• Scroll down to Less Common Income
• On Sale of Home (gain or loss), click the start or update button

If your gain on the sale will be less than the applicable limit, and if it was never used for business or as a rental, and you didn't receive a Form 1099-S, you don't need to report the sale on your return at all. Not having to report the sale could save you from needing to upgrade your TurboTax product.

See this article for more information on determining the gain on the sale of your home.

Second question: HELOC interest is not deductible in this situation where the loan was secured by a different property than the one is was used to purchase. Mortgage interest on a residence is only deductible if it's on secured loans. To qualify, the loan must also be secured by the property it was used to buy, build, or improve.

Please see this article and this one for more information on home mortgages from TurboTax. 

[mikep2345]

Appreciate your help clarifying it.

Thank you.