Homeowners Exclusion

[nicolefischer90]

I bought my home in 1999, (which is over the 5 year rule) for $181,000 and sold it for $389,900. We are filing MFJ and it states that I owe roughly $30k in federal taxes. I do not understand why as up to $500k of profit is excluded if you file MFJ. Once I put in improvements to the cost basis (which also happened), I brought this amount down to close to nothing.

MY question is - why do i need to even put in improvements if the exclusion should be $500k? Can someone please explain? My nephew, who is a CPA, is also confused and thinks turbotax's software calculates it incorrectly. Please let me know! 

[Opus 17]

There is a special section for sale of your primary home. If you are in the section for sale of general assets, you will not get the qualification questions. If you are in the section for the sale of your primary home, you will be asked a series of test questions and if you answer them correctly, TurboTax will tell you that your gain is not taxable. I suspect you are in the wrong section, or you miss answered the questions.

[Carl]

why do i need to even put in improvements if the exclusion should be $500k?

Because you are required by law to depreciate property improvements the same as the property. I would expect a CPA to know that without even giving it a 2nd thought.

I do not understand why

Because you are required to pay taxes on the recaptured deprecation *no* *matter* *what*. That includes depreciation recaptured on any and all property improvements.

If you did not take depreciation, then you are still required to recapture the depreication you *should* have taken, and pay taxes on it.

The taxation of recaptured depreciation is not included in the exclusion, and you will pay taxes on it with no exceptions.

[Anonymous]

so the question becomes was it ever rented?  if no, then follow Opus 17 becuase you would be entitled to $500,000 exclusion if in 2 out of the 5 years before sale you and your spouse occupied the residence. Only one of you $250,000.   

if it was rented then you have problems becuase Carl is correct and you owe taxes on the depreciation taken or allowed (the exclusion doesn't apply) - that is the depreciation you should have taken on the house and improvements when it was rented.  if this is the case talk to your nephew about how to fix this issue.    

[Hal_Al]

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Incom

Scroll down to:

-Less Common Income

     - Sale of Home