Home sale when file Married filing separately

[dimitrim]

5 years ago my wife and I bought a house for $200K and lived in it, primary home and meet ownership test. In 2021 we sold the house for $600K. How do I handle the $400K gain?

1. If we file as Married filing separately, do I claim selling price as $300K ($600K/2) - expenses/2 in each file or 

2. I must switch from MFS to Married filing Jointly to account for the total $400K gain in a single file

Is #1 a viable option ? 

[AamilD · Accepted solution]

Yes you can still file as MFS. If filing as Married Filing Separately, you will divide everything equally including the exclusion. Total exclusion for each of you will be $250,000.

Since the total exclusion of gain is $500,000 and if you file as MFS then each of you can take $250,000 of exclusion.

So if you want to file as MFS, you can split everything 50/50 including the 1099-S which you would have received. 

To include the 1099-S that you should have received from the sale of your home follow these steps:

Please follow the steps below to include your 1099-S on your tax return:

• Go to Federal Taxes

• Select Wages & Income

• Click I'll choose what I work on

• Scroll down toward the bottom and find the "Less Common Income" section 

• Select Start next to Sale of Home

• Go through this section and include your 1099-S information.

[dimitrim]

@AamilD Thanks for the quick reply. 

So with MFS and each of us taking the $250,000 exclusion, if the gain is less that $250,000 I don't have to record the home sale since I did not receive a 1099-S? 

[JohnB5677]

That's correct, you do not have to report the sale.  Here is the IRS guideline.  Topic No. 701 Sale of Your Home  Under Reporting the Sale

If you receive an informational income-reporting document such as Form 1099-S, Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. 

Additionally, you must report the sale of the home if you can't exclude all of your capital gain from income. Use Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return.

[michaelvan]

Do my wife and I need to split the gain above $500K on the sale of a primary home 50/50 or can split the gain 75/25 or any other percentage that we choose?  Or does the IRS give guidance or do they have a rule that forces couples to split the gain by 50/50?

[JohnB5677]

Please clarify your question.

• Are you filling separately?
• Do you have Capital losses that you can cover?
• What is the tax implication of the way the split is distributed?
• Is this simply a domestic mater of the amount that you each should get?

@michaelvan 

[michaelvan]

We each would file separately.  We are not splitting the gain 50/50.  More like 80/20.  Neither of us have any additional capital losses.  Tax implication should be equal as we would pay on the same gain, just on separate returns.  Partially a domestic matter as I paid 100% for the home.  the other part is that she would lose her Obamacare subsidy if she reports too much of the income.  but she is not asking for more than 20% and that is our agreement. 

[SusanY1]

Marketplace insurance subsidies are determined based on household income. 

Filing separately can adversely impact the subsidy and require repayment of it on the tax return.   Filing jointly, with limited exceptions, is a requirement of the marketplace subsidy.

For information about those exceptions - see the FAQs HERE.  You may qualify under one of these but just wanted to point this out so that you are aware. Filing separately just to avoid reporting certain income won't help without one of the exceptions, and the overall tax you pay may be higher.  

For the home sale, if you're under the exclusion amount and do not have a 1099-S, neither of you need to report it at all.