Home Sale / Filing Divorced / Best Turbo Tax Program

[HeidiM8]

Aloha,

I owned a home with my former husband. It was our first and only home. We bought it 1995 and we sold it Jan 2022. We purchased it for $220 and sold it for $880. We split the proceeds. I understand that we will also split everything (purchase, costs, proceeds) and report, file separately. I make a modest annual income of $25-$35K per year and usually take the standard deduction (because not enough deductions).

1. What it the the basic breakdown of how to calculate a first home real estate sale?

2. Do we deduct the entire original purchase price straight from the net after sale?

3. Do we deduct the entire (eligible) capital gains expenses (costs) from the net after sale?

4. Is the single deductible still $250K?

5. Does the taxable amount from sale get added to net income or is it taxed separately/differently to calculate Federal Taxes due on home sale proceeds?

6. What is the rate schedule for Federal taxes on home sale proceeds? How does one calculate the taxable and tax due?

7. What is the rate schedule for Hawaii State taxes on home sale proceeds? How does one calculate the taxable and tax due?

8. Are there any special laws / tax breaks around first home sale and second home purchased?

9. Are there any other special laws specific to first home sale?

10. Are there any recommendations for optimum tax filing?

11. Which Turbo Tax program do I use to best support optimum filing?

12. How much would it cost to work directly with a Turbo Tax CPA to ensure that I am filing correctly and completely?

[kdevere]

A home sale with a large capital gain can be intimidating!  So the excludable gain is 250k for single, and 500k for Married Filing Jointly.  When you sell your home, your gain (profit) or loss for tax purposes is determined by subtracting its basis on the date of sale from the sales price (plus sales expenses, such as real estate commissions).

You calculation for gain is:
(Selling price - closing costs) - (Price paid + closing costs + capital improvements) = Capital Gain

So simply put, you would take the selling price, which is $880 and subtract the closing costs, which are realtor fees, title, etc.  Your settlement statement should include all the people you paid when you sold the home.  So it would be $880 minus the closing expenses.

You do the same to calculate your cost basis, except you take the purchase price, $220, and ADD the closing costs, PLUS any improvements you did over the years that improved the value of the home, for example a bathroom remodel, or a new driveway, things you did to the home over the years that improved or added value to the home.

Once you do that, you have your adjusted basis, so let's say for example you paid 10k in closing costs and over the years had 50k in improvements.  Your adjusted basis would be $220 + $50 + $10 = $280
Your selling price is $880, but you had $25k in closing costs, so that would be $880 - 25 = $855
Your total capital gain would be $855 - $280 = $575
If you are filing single, you would divide everything by 2 to get your reportable portions - presuming you are splitting everything equally, you would divide by 2.  In our example, your portion would be $287.5, so your taxable gain would be $37.5

The 2022 Capital Gains tax rates are:

Tax filing status	0% rate	15% rate	20% rate
Single	Taxable income of up to $41,675	$41,676 to $459,750	Over $459,750
Married filing jointly	Taxable income of up to $83,350	$83,351 to $517,200	Over $517,200
Married filing separately	Taxable income of up to $41,675	$41,676 to $459,750	Over $459,750
Head of household	Taxable income of up to $55,800	$55,801 to $488,500	Over $488,500

As you can see from the table, if your income is in under $41,675 your capital gains tax rate would be zero, so you should not incur much if any capital gains tax.  Capital gains tax is calculated separately since it has a different tax rate than ordinary income taxes.

As for which program, anything from Deluxe up will work depending on your other filing needs.  The software will also walk you through the state portion.  Hawaii mirrors the federal tax rules on capital gains exclusion for a personal home sale.  Otherwise, there are no special breaks or credits for home sales other than the capital gain exclusion.