Help to reduce capital gains from selling our house

[Tom Bonifield]

We sold our house in 2023 after owning it for 24 years. The apparent capital gain from the sale is greater than $500,000. How do I reduce my capital gains from the sale of the house? What information or documentation will I need?

[TeriH]

Congratulations,

as you quoted the $500,000 exemption, I'll assume you are married filing joint.  And for these purposes i will also assume you never rented it, and lived in it 2 of the last 5 years.  Ok,  the gain is calculated as the difference between the selling price and the basis.  You mentioned your original basis, ie what you paid for the house.  If you have any home improvements, that would increase your basis, and accordingly decrease your gain. So, ponder what you've done to increase the value of your home.

Here's a great TurboTax article  that will answer many of your questions.

[Tom Bonifield]

Which turbo tax software is best for covering this case?  What documentation will be needed for home improvements used to increase the basis in our house?

[TeriH]

You will need the Premier software to handle the home sale. 

As far as documentation, just imagine Uncle Sam walks in your door for proof.  You'd want to have good records and or support for what you are claiming.  Understanding this is 24 years of life, you may need to be creative re documentation.

[MelanieCPA]

Hi @Tom Bonifield , thank you for joining us this morning and congrats on the sale of your home!

To properly report the sale of your primary residence gather the following documents:

• Closing statement when you purchased the home 23 years ago;
• Closing statement when you sold the home in 2023;
• 2023 Form 1099S (you may receive this from the Title Company -- but the same information should be on the 2023 closing statement);
• Receipts from major purchases/upgrades to the home such as a home addition, new roof, upgraded kitchen, etc.;
• Documentation of any casualty losses or tax credits during the time that you owned the home.

Using your documentation you can then determine the adjusted basis of the home starting with the home purchase price, plus the costs to purchase the home and any major home improvements.  You will also need to reduce this amount by any losses or tax credits.

The sales price of the home is reduced by the selling costs, such as realtor fees, title fees, etc. to sell the home typically listed on closing agreement.  Many of these expenses can be substantial.

The adjusted sales price less the adjusted basis of the home will give you your overall gain.  If you are filing Married filing Jointly and lived in the home for two of the five years before the sale you can exclude up to $500,00 of the gain.  

TurboTax is great at guiding you through these questions and helping you to capture all of the related costs and expenses.  Here is a link for additional information on items to consider

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

Thank you!

Melanie, CPA