How do i file a 1099-S form for a house that was Quit claim deeded from my father to myself and 4 other siblings? How do we establish cost basis?

[mack12345]

Opus17. You've been so helpful. I'm clear now on my cost basis. Thank you. The home I sold has been owned by me for many years. I married in March 2021; sold in Oct 2021. So my home was acquired by me before marriage. We  do live in California. My spouse does not meet ownership or use requirement of the home I sold (he is not on deed) for capital gains exclusion. I meet it for the 250,000. Can we file married filing separately in California? Any special considerations? Are there any special rules for me regarding the 1099 and taking the 250,000 exclusion I qualify for on my MFS taxes. Does he have to record anything about the sale on his return? I appreciate your expertise

[mack12345]

Sorry if this is a duplicate message. I don't see it being sent in my activity thread.

Opus 17 You've been so helpful. I'm clear now on my cost basis. Thank you. The home I sold has been owned by me for many years. I married in March 2021; sold in Oct 2021. So my home was acquired by me before marriage. We  do live in California. My spouse does not meet ownership or use requirement of the home I sold (he is not on deed) for capital gains exclusion. I meet it for the 250,000. Can we file married filing separately in California? Any special considerations? Are there any special rules for me regarding the 1099 and taking the 250,000 exclusion I qualify for on my MFS taxes. Does he have to record anything about the sale on his return? I appreciate your expertise

[Opus 17]

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@mack12345 wrote:

Opus17. You've been so helpful. I'm clear now on my cost basis. Thank you. The home I sold has been owned by me for many years. I married in March 2021; sold in Oct 2021. So my home was acquired by me before marriage. We  do live in California. My spouse does not meet ownership or use requirement of the home I sold (he is not on deed) for capital gains exclusion. I meet it for the 250,000. Can we file married filing separately in California? Any special considerations? Are there any special rules for me regarding the 1099 and taking the 250,000 exclusion I qualify for on my MFS taxes. Does he have to record anything about the sale on his return? I appreciate your expertise

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Marriage imparts ownership, so that is not an issue.  If your spouse lived in the home for 2 years as their main home (more than 730 days), even if you were not married, they can claim their portion of the exclusion.

Filing separately will almost always cause you to pay more tax, and it is especially complicated in a community property state like California.  There is no reason not to file jointly, you should be able to just claim your exclusion (Turbotax should ask if you and your spouse qualify separately.  It should not give you the $500K automatically.)

[mack12345]

Hi.

My spouse lived in the home I sold as his residence for 16 months immediately prior to the sale.

He was my spouse for 7 of those 16 months. It sounds like he meets the ownership through marriage even though the marriage overlaps only 7 months of my home ownership.  Being we are in California, I now understand the community property publication. I didn't realize a home I acquired before marriage is considered community property in meeting ownership eligibility test for the cap gains exclusion. 

Is that correct? And if so, then could he qualify for a partial exclusion for the 16/24 months if we file married joint?

[Opus 17]

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@mack12345 wrote:

Hi.

My spouse lived in the home I sold as his residence for 16 months immediately prior to the sale.

He was my spouse for 7 of those 16 months. It sounds like he meets the ownership through marriage even though the marriage overlaps only 7 months of my home ownership.  Being we are in California, I now understand the community property publication. I didn't realize a home I acquired before marriage is considered community property in meeting ownership eligibility test for the cap gains exclusion. 

Is that correct? And if so, then could he qualify for a partial exclusion for the 16/24 months if we file married joint?

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If your spouse lived in the home as their main home for 16 months before the sale, they don't qualify for the full exclusion, because it was not more than 2 years.

They might qualify for a partial exclusion, but only if the home sale was due to one of the circumstances listed in publication 523 as qualifying for a partial exclusion.  These include a job change of more than 50 miles, medical necessity, or other unforeseen circumstances that would have created a financial hardship to stay there.  (In that case, they can exclude 16/24 or $166,666 and you can exclude $250,000.  I'm not sure Turbotax handles that complicated an exclusion, we can test it if you think your spouse can qualify for a partial exclusion.)

See page 6. https://www.irs.gov/pub/irs-pdf/p523.pdf

[mack12345]

Opus 17 You've provided many answers/support /facts that have been very helpful. I'm a little anxious to do my own taxes during year of home sale. It was a rental for 3 years before my 2 years occupancy. Do you offer forms filing assistance through the platform or externally provide tax services? Thank you

[MarilynG1]

In the Sale of Home section, TurboTax asks (for each of you) how many months you lived in the home during a particular time period. 

It will do the 'partial exclusion' calculation for your spouse since he lived in the home for a different amount of time than you did. 

Click this link for more info on Partial Home Sale Exclusion.

[Opus 17]

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@mack12345 wrote:

Opus 17 You've provided many answers/support /facts that have been very helpful. I'm a little anxious to do my own taxes during year of home sale. It was a rental for 3 years before my 2 years occupancy. Do you offer forms filing assistance through the platform or externally provide tax services? Thank you

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I don't do private tax work.  If you feel you need confirmation you are doing the right thing you can upgrade to Turbotax Live to get an expert review.  Or you can upgrade to Full Service.

The prior rental raises new issues.  The rental period is non-qualified for the capital gains exclusion.  (This is not well-described in current IRS instructions, but Turbotax will perform the calculation correctly.)  Also, you have to repay any depreciation you claimed or could have claimed during the rental period.  

The first part of your capital gains attributable to depreciation is taxed as ordinary income with a max rate of 25%.  3/5 of the rest of the gain is non-qualified and not eligible for the exclusion so it is taxed as a long term capital gain at a reduced rate, and 2/5 of the gain is qualified and eligible for the exclusion.  You can exclude up to $250,000 of the qualified gain, and if your qualified gain is more than $250,000, your spouse can exclude a partial amount if you moved for one of the safe harbor reasons.  If your qualified gain is more than your exclusion, that will also be a long term capital gain.

[mack12345]

Hi again. Turbo Tax Live is a great idea.

• I've owned the home since March 2002.
• Lived in it as my residence March 2002- until April 2015.
• Turned it into a rental from May 2015-September 2019.
• The depreciation was approx 600  total for those tax years. I used a tax pro who depreciated in 2015,16, and 17 an improvement. I did my own taxes on Turbo Tax and did not depreciate in years 18 and 19.
• Last rental day was October 1, 2019.
• Did I properly document it as no longer a rental or should I have done something more?  (In tax year 2019 I entered 274 rental days on Schedule E.
• On my 2019 tax return I itemized and entered the residence as my home address and entered 25% of 2019 mortgage interest. as itemized deduction
• Lived it in again for just over 2 years- my residence October 2, 2019-October 8, 2021. Escrow closed October 8, 2021.

Is there something else I should have done to take it out of service? I have lots receipts showing my occupancy- homeowners insurance, utilities, etc.

Not clear on non qualified use. I'll read up on that.

Thank you Opus 17!

[LeonardS]

Non-qualified use means the period during which home was not used as the principal residence.

When a home is converted to a rental property and later sold there are special items that need to be accounted for when calculating gain or loss on the sale

The IRS requires that you use the LOWER of the original purchase price, 2002 in your case, or the fair market value when it was converted to a rental in 2015 as your basis.

However, there are other factors that must be considered in calculating the gain/loss on a rental that was originally your home.

If a residence converted to a rental property is later sold at a gain, the basis in the converted property is the original cost or other basis plus amounts paid for capital improvements, less any depreciation taken. If the sale results in a loss, however, the starting point for basis is the lower of the property’s adjusted cost basis or FMV when it was converted from personal to rental property (Regs. Sec. 1.165-9(b)(2)).

This rule is designed to ensure that any decline in value occurring while the property was held as a personal residence does not later become deductible on the sale of the rental property.

@mack12345

[mack12345]

@LeonardS  For the property that was my residence for roughly 13 years, then a rental for roughly 3 1/2 years, then my residence again for little over 2 years... I used Turbo Tax for 2019 entered the number of days as rental. In 2019, it was rented 274 days Jan 1-Oct 1, 2019). Then it became my residence (Oct 2-,2019). I need to know if there is anything else I should have done on my 2019 taxes to indicate it became my residence on a certain date (Oct 2,209) as I barely met the 2 year out of 5 year rule on COE Oct 8, 2021.  Thank you

[LeonardS]

No, so long as you reported it being changed to personal use on your 2019 tax return there is nothing you need to do.  I would recommend that you have supporting documents such as utility bills a record of the renter leaving, returning deposit, etc.  You would only need these in the chance that you are asked by the IRS to provide proof of when you actually started using the house as your home.

@mack12345

[Opus 17]

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@mack12345 wrote:

@LeonardS  For the property that was my residence for roughly 13 years, then a rental for roughly 3 1/2 years, then my residence again for little over 2 years... I used Turbo Tax for 2019 entered the number of days as rental. In 2019, it was rented 274 days Jan 1-Oct 1, 2019). Then it became my residence (Oct 2-,2019). I need to know if there is anything else I should have done on my 2019 taxes to indicate it became my residence on a certain date (Oct 2,209) as I barely met the 2 year out of 5 year rule on COE Oct 8, 2021.  Thank you

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Because you moved out, then back in, the period of time the home was a rental will be "non-qualified" for the exclusion.  There is a worksheet in publication 523, but I believe Turbotax will handle the calculation correctly. Essentially, 3/18th of your gain is not eligible for exclusion, plus you need to pay recapture on depreciation you took or could have taken while the home was a rental.  Then, the remaining gain is eligible for the exclusion. 

If audited, you do want to be able to prove the important dates. 

[Opus 17]

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@mack12345 wrote:

@LeonardS  For the property that was my residence for roughly 13 years, then a rental for roughly 3 1/2 years, then my residence again for little over 2 years... I used Turbo Tax for 2019 entered the number of days as rental. In 2019, it was rented 274 days Jan 1-Oct 1, 2019). Then it became my residence (Oct 2-,2019). I need to know if there is anything else I should have done on my 2019 taxes to indicate it became my residence on a certain date (Oct 2,209) as I barely met the 2 year out of 5 year rule on COE Oct 8, 2021.  Thank you

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It's hard to give you a clear answer because the facts keep changing, you owned the home 5 years, now 18 years.

Non-qualified use means that a landlord can't convert the taxable sale of a rental into a tax-free personal home.  The IRS stopped including a detailed description of non-qualified use in IRS publication 523 around 2013, but it is still in the regulations and in the worksheets for calculating gain.

In your case, because it was your main home, then you moved out, then moved back in, the middle period is non-qualified.  Here, it's about 3/18 of your ownership (you will actually figure it out to the month or to the day.)  I believe Turbotax should ask for all the dates--purchase, move out, move back, and sale, and determine your exclusion that way.  You will need your tax returns from when the home was a rental to get the depreciation numbers that you claimed.  Turbotax should also ask about that.