Sale of Second Home - Capital Gain or Loss Reporting

[syoung123]

Hello, I have the TurboTax Premier CD Window version that I bought at the local Staples store, and I did the “check for update” and it is up to date.  My TurboTax software is not showing what you have per your reply.  I deleted all the entries in the “investment income” and the “less common income – sale of home” sections, and re-input the following:

In the “less common income” section, I opened the “sale of home” topic and the screen shows:

“Sale of Your Main Home

In this section we’ll record the sale of your main home, your principal residence……This does not include the sale of a vacation home or a second home.  You’ll report that in the investments section.

If you home was foreclosed or you received a 1099-S, you’ll need to report that here.

Did you sell or have your home foreclosed in 2021?....”

So, it tells me this section is for sale of main home only, and I am required to report it if I received a 1099-S whether I had a gain or loss (I had a loss).  I went ahead and selected “yes” to do the input to see what happened (given that it says main home sale only)

When I clicked “yes”, the following screens show:

• Sold a home – shows information that I need to have to get started
• Select who owned the home, and input address, city, state, zip code
• Sale Information - received a 1099-S (yes), input date sold, selling price, sales expense (which I input $150,000 price and $11,000 closing costs)
• Tell us about purchase of your home – date bought, adjusted cost basis (which I input $144,000 original purchase price plus improvements)
• Depreciation after May 6, 1997 (which I selected no)
• No exclusion – you have a loss of $5,000. Personal losses are not deductible (TurboTax tells me I have a loss that is not deductible.  Yet the form 8949 does not include the sale expense and shows a gain.  see below for I saw in form 8949)
• Home sale summary – displayed address and sale price of $150,000 (done)

Then I looked at Form 8949 for this entry and it showed the following:

• Box F checked (ok?)
• Column (a) – “main home sale – address”
• (b) – date acquired – purchase date
• (c) – date sold
• (d) – proceed - $150,000 sale price
• (e) – cost basis - $144,000 (only shows the purchase cost plus improvements, it does not include the $11,000 sale expense)
• (f) – EL – not sure what they mean, Exclusion (for main home) and Loss?
• (g) – negative of $6,000 (to make column (h) $0; however, it should show positive of $5,000, which should offset the $150,000-11,000-144,000 = $5,000 loss)
• (h) - $0

Then I went to the “investment income” section and in the “stocks, mutual funds, bonds, other” topic to see what it would do for inputting second home (since the "sale of home" section says "You’ll report that in the investments section."  I input the following:

• Did you get a 1099-B - no since I have a 1099-S
• Tell us about this sale – I selected “I’ll enter one sale at a time”, description (sale of second home), date sold, date acquired, sale proceeds ($150,000), cost of other basis ($11,000 closing costs plus $144,000 purchase costs and improvement = $155,000), holding period (long term Box F)
• Any of these less common items? – i.e., accrued market discount, wash sales – I did not input anything on this screen
• Was this a sale of employee stock – "no"
• Select any less common adjustments – I did not select any since they were not applicable
• Did you have another sale to enter – "no"
• Here’s your sales that are not reported on 1099-B – it displayed my entry of $150,000; I then selected done
• Do you other investment sales from another bank or brokage?  - "no"
• Here’s all the investment accounts we have so far – I selected done and it went goes back the 2021 income summary screen

Then I looked at Form 8949 for this entry and it showed the following:

• Box F checked (ok?)
• Column (a) – the description of what I entered
• (b) – date acquired – purchase date
• (c) – date sold
• (d) – proceed - $150,000 sale price
• (e) – cost basis - $155,000 (what I input cost plus improvements plus sales expense)
• (f) – blank
• (g) – blank
• (h) – negative of $5,000.  In theory, this is not correct before second home sale loss is not deductible.  However, TurboTax looked at this as a brokage transaction and allowed the loss.

The "Sale of Home" section says "This does not include the sale of a vacation home or a second home.  You’ll report that in the investments section."  And the "Investment Income" section does not appear to provide a mean to enter sale of second home.

I apologize for the long post, but I don’t see the topics or options that you said in your message in my TurboTax software, and I want to show you exactly what I entered and the results that I saw.  Please advise.  Thank you.

[RaifH]

Please only report this transaction in the Personal Income > Investment Income > Stocks, Mutual Funds, Bonds, Other section of your tax return. Do not report under Less Common Income > Sale of Main home. That is only for the sale of your main home which is eligible for an exclusion on the gain. Follow these steps:

1. Go to Personal Income > Investment Income > Stocks, Mutual Funds, Bonds, Other and select Start/Update.
2. Select Add More Sales.
3. Did you get a 1099-B or a brokerage statement? Answer No.
4. Enter one sale at a time.
5. Include in your costs or other basis your selling expenses for a total of $155,000. Enter sales proceeds as $150,000 and enter the rest of the information. TurboTax will determine the holding period.
6. Select No, this is not employee stock.
7. Under Select any less common adjustments that apply click the box next to Any loss from this sale is not deductible for reasons other than disallowed wash sale (personal use property, sale to related party, etc)
8. Select This is personal use property (like a vacation home)
9. Select No.

Please pay attention to step 7 & 8 because I think you missed that one according to your entry above. At this point, your Form 8949 should show a gain or loss of 0 with an adjustment amount of $5,000 with Code L to indicate it is a disallowed loss. 

@syoung123

[syoung123]

Thank you for your reply.  I think it worked now.  In the "Tell us about this sale" screen, I put in $150,000 for sale proceeds and $155,000 (sale expense plus adj cost basis); and in the "select any less common adjustments that apply" screen, I selected the box that says "any loss from this sale is not deductible for reason other than wash sale, and then "this is a personal use property (like a vacation home) like you said. 

1.  The "here's all the investment accounts we have so far" summary screen shows "no financial institution" in the "institution name" column, gross proceeds show $150,000, gain/loss shows $0.  For the "no financial institution", is it supposed to show that?  Or does it matter since the "no financial institution" does not show on the printed form 8949?

2.  On the form 8949, I see the following.  Are they correctly shown?

• Box F checked
• Column (a) – “sale of home”, which is what I entered as description.  Should I put in the address and zip code, like the sale of main home section asks to do?  Or does it matter?
• (b) – date acquired – purchase date
• (c) – date sold
• (d) – proceed - $150,000 sale price as I entered in the "investment income" section
• (e) – cost basis - $155,000 cost basis, the aggregate total of sale expense and adj cost basis as I entered in the investment income section like you said
• (f) – code L – as in "loss" not allowed?
• (g) – positive amount of $5,000 (150,000-155,000) to zero out the loss
• (h) - $0

  Just out of curiosity, I used the "sale of main home" to input the same data.  I did not put anything in the "sale expense" box (because initially I put in $11,000 for sale expense and it did not show on form 8949).  Instead, I put the total of $155,000 (sale expense plus adj cost basis) in the cost basis box.  Form 8949 for this home sale entry as "sale of main home" shows exactly the same as the second home sale entry that I entered in the "investment income" section.  It does not appear to specifically identify whether it was a main home sale or second home sale (only code L is shown in column {f), no other codes are displayed).  The only difference is in the description TurboTax put in "main home sale with address" for the sale of main home entry, and what I entered "sale of home" for the investment income entry.  So the two entries basically look the same.  So if the sale was a loss, how does IRS differentiate one ale was main home and the other was second home/vacation home?  I am just wondering if in the future I sell my main home for a loss, whether the "main home sale" exclusion rules apply (i.e, 24 months of last 5 years ownership, can't claim exclusion for at least 2 years, etc).

[syoung123]

Also, I found some TurboTax posts for tax season 2020 that mentioned the issues with second home sale.  Was that resolved with what you told me to do in the investment income section?  And in the main home sale section, when I put the amount in sale expense box, the screen says I had a loss, but form 8949 does not include the sale expense and shows a gain instead with Code EL.  Is it a bug that needs to be fixed?

[RaifH]

Yes, the way you entered it looks fine, although I would replace "sale of home" with the address and zip code as you suggested. 

As for the "no financial institution," this is fine as long as you did not get a Form 1099-S that reports the sale. 

To address your second question about the sale of home section, I could not re-create your error. When I put in the sales expense, it properly added that to the cost basis and used Code L to indicate it is a disallowed loss. Code E is used if you did receive a 1099-S and the sales expenses were not included on that form as part of basis. Regardless of whether or not you received a 1099-S, TurboTax did correctly adjust the cost basis for me which turned the sale into a disallowable loss. 

The reason to use the investment income section instead of the sale of home section is that the exclusion can only be applied to the sale of your main home. Even though in this case the sale generated a loss, we do not want it to be reported as a main home sale on Form 8949 because this may impact your ability to claim the exclusion in future years. The exclusion cannot be claimed for two years after you use it. For more information about the exclusion of gain from the sale of your main home, see IRS Publication 523.

[syoung123]

Thank you or the additional info.  I'll change the description to include the address.

For you comment regarding my question on "no financial institution", I received a substitute 1099-S from the escrow/title/closing company.  The form shows only the gross proceed/sales price and address, (no closing costs).  So I need to change the "no financial institution" description then?  How would I make the change, and to what do I change the description, the name of the escrow company? 

For the "sale of home input", as a test, I put in "selling price" of $150,000, "sale expenses" of $10,000, and "adjusted cost basis" of $155,000.  Form 8949 for this entry showed:

• Box F checked
• (d) – proceed - $150,000 selling price
• (e) – cost basis - $155,000 (only shows the purchase cost plus improvements, it does not include the $10,000 sale expense that I put in as a test)
• (f) – EL – I think "L" is for "non-deductible expenses", and "E" is for "sale expenses"?  The "E" was not there for the earlier entry that I left the "sale expenses" box blank, and put the total of sale expenses, purchase cost and improvements in "adjusted cost basis".  And now "E" showed up because I put an amount in the "sale expenses" box?
• (g) – positive of $5,000 ($150,000 - $155,000).  In theory, it should show a positive of $15,000 ($150,000 selling price - $10,000 sale expenses - $155,000 adj cost basis).  The TurboTax screen result said I had a "No Exclusion" of $15,000 non-deductible loss, but Form 8949 showed a positive $5,000 in column (g) instead.  My software is not showing the adjustment in column (g) correctly like the version that you used.
• I checked the "received 1099-S" button for both the entry that I did not put an amount in the "sale expenses" box and the entry that I put an amount in the "sale expenses" box, and both show a net loss.  The entry that I did not have amount in the sales expenses box showed only code L in column (g), and the entry that I had amount in the sale expenses box showed codes L and E.  So it appears that the TurboTax software did not differentiate whether I had a 1099-S (which I do) or not, it generated code E because I put an amount in the "sale expenses" input box?

So, per my previous inquiry, with TurboTax, on the printed form 8949, it appears that the entry that I did using the investment income section and the entry using the sale of home section displayed the same dollar amounts and same code (L) on column (g).  Initially I thought code "E" identified the entry was a main home sale, but it appears code E was generated because of the "sale expenses".  I don't know the e-filing data would identify whether it was main home sale or second home sale based on whether I used the investment income or sale of home section to enter the transaction.  If I file paper return, how would IRS know whether it is a main home sale or second home sale, since the printed entries on form 8949 look the same?

I am just curious on how TurboTax works regarding this topic.  Thank you.

[RaifH]

Yes, it is reported on the same form whether it is a main home or a second home. The exclusion on gains for main homes have a Code H. Although TurboTax would not code it with an H on a loss, just to avoid any possible confusion either with incorrectly claiming the exemption which can only be claimed on the main home or having the IRS see the loss entered as the sale of a main home (since the description would classify it as a main home) and therefore disallowing the exemption for the next two years, it is far better just to enter it in the investments section. 

Code E appears when you have a selling statement that does not include selling expenses and those have been manually added in. It is just reporting that the adjusted cost you are reporting does not match what the Substitute 1099-S has reported.

To report that you did receive a brokerage statement:

1. Go to Personal Income > Investment Income > Stocks, Mutual Funds, Bonds, Other and select Start/Update.
2. Select Add More Sales
3. Did you get a 1099-B or a brokerage statement? Answer Yes. Select My bank/brokerage isn't here. Enter the name of the Escrow firm that provided the substitute 1099-S. 
4. Enter one sale at a time.
5. Enter the amounts as reported on the form without the sales expenses since they were not reported on the form. Select Sale Category of F if this is not a form this reported to the IRS (ie not an actual 1099-S).
6. Select No, this is not employee stock.
7. Under Select any less common adjustments that apply click the box next to Any loss from this sale is not deductible for reasons other than disallowed wash sale (personal use property, sale to related party, etc)
8. Select This is personal use property (like a vacation home)
9. Also select The reported sales price did not deduct all fees or selling expenses. Enter your selling expenses here.

After all is said and done, the 1099-B should have the name of your Escrow agent that provided the form. On Form 8949, the description should be the address of the property, the actual proceeds and cost listed on the form you received from escrow should appear in Boxes D and E. The codes in Box 5 should be E,L and Box G should have a -10,000 adjustment to adjust the proceeds to the cost so the amount of gain in Box H is 0. 

Boxes D, E, G, and H will carry through to Part II of your Schedule D. 

[syoung123]

Hello, thanks again for your reply.  Per you reply, I understand that in order to change the "no financial institution" description, I would need to enter the home sale as a 1099-B brokerage transaction, even when I received a 1099-S substitute, not a 1099-B for the home sale?

I followed the steps in your reply as follows -

- "did you get a 1099-B?"  answer Yes (although I have a 1099-S sub)

-  entered the name of escrow company

- In the "tell us about your (escrow company name) 1099-B" screen, "sale #1 of 1", "I'll enter one sale at a time" - I entered the address in "description", "date sold" and "date acquired", "sales proceed" $150,000, "cost or other basis" $144,000 (this includes only the purchase cost plus improvements, no sale expenses), selected Box F (long term not reported - since this is actually a 1099-S, not a 1099-B?) 

- did not enter any #s in the next screen, "any of these uncommon items", such as accrued market disc

- selected "this is not an employee stock"

- next screen shows the street address in the heading - I put in $11,000 under "the reported sale price did not deduct all fees or selling expenses"; checked the "any loss from this sale is not deductible" box and selected "this is personal use property (like a vacation home"

- next screen shows "here's all the sales reported by (the escrow company name)", and the entry that shows the house street address and "gross proceed" of $150,000

- next screen shows "here's the summary of sales from this account" and the escrow company name, category column shows Box F, description column shows "long term sale not reported to IRS" (but it is reported to IRS through the 1099-S substitute form.  Does it matter if TurboTax displays "long term sale not reported to IRS"?), "net gain/loss" column shows $0 

Now, on form 8949:

• Box F checked (correct)
• (a) - street address (correct)
• (b) - date acquired (correct)
• (c) - date sold (correct)
• (d) – proceed - $150,000 selling price (correct)
• (e) – cost basis - $144,000 (again, it only shows the purchase cost plus improvements, it does not include the $11,000 selling expense that I put in under "the reported sale price did not deduct all fees or selling expenses" line)
• (f) – EL – "L" is for "non-deductible expenses", and "E" is for "sale expenses" since I put in $11,000 under "the reported sale price did not deduct all fees or selling expenses" line
• (g) – negative of $6,000 ($150,000 - $144,000).  My version of the TurboTax again did not show the $11,000 sale expenses and showed a "gain" of $6,000 to adjust column (h) to zero, even in column (f) it showed code "L" for non-deductible loss.  Column (f) should have shown a positive of $5,000 adjustment of the net loss ($150,000 - 144,000 - 11,000 = -5,000)
• (h) - $0

When I went back and added the $11,000 in the cost basis box, and put a "0" in "the reported sale price did not deduct all fees or selling expenses" line, column (f) showed code only "L", column (g) showed positive of $5,000, and column (h) show "0".

So the TurboTax that I have does not show the sale expenses in form 8949 and your does.  I don't think I entered the data in the steps incorrectly.  Not sure what to do now.  Please advise.  Thank you.  

[RaifH]

Form 8949 column G will only adjust to get the gain to 0 since it is a disallowable loss. That is why the total adjustment is -6000 on yours using the first method when you entered the selling expenses separately instead of -11000 like you expect. Once it is 0, it will not adjust it below 0 because you cannot realize a loss on personal property.

When you entered it the second way by including the sales expense into the cost, the adjustment was a +5,000. The adjustment in Column G is for the Proceeds in Column D. Again, it needs to adjust it so that the gain recognized is 0 because the loss is disallowed. By including the expenses in the basis, it has to adjust the proceeds +5000 to get the gain to 0. 

I would use the first method, but both are correct. I would only choose the first since in that way you are reporting the basis reported to you on the form and using your selling expenses as an adjustment, with the Code E in column f. 

For your transaction Column D + Column G must equal Column E.

I would keep it at code F, because Code D is specifically for long-term transactions with the basis reported to the IRS on a 1099-B. 

[syoung123]

The concern that I have is, when I entered the $11,000 sale expense separately on "the reported sales price did not deduct all fees or selling expenses", Form 8949 did not show this amount and appeared to show a gain of $6,000 ($150,000 selling price minus $144,000 purchase cost plus improvements) and column (g) shows negative of $6,000 to offset the "appearance of gain".  The TurboTax software that I have probably stored the $11,000 sale expenses some$144,000 purchase cost/improvements that totaled to $155,000, this total amount showed on column (e) with only code "L" on column (f), and column (g) showed a positive of $5,000, which probably accounted for the $11,000 on the paper form to show a net loss.

The 1099-S sub that I received only shows the gross proceed.  There are no sale expenses (closing costs) or cost basis (such as the cost when we bought the home).  Just curious, does "1099-S substitute" get sent to IRS, or just "1099-S"?  Why do escrow company use 1099-S sub instead of regular 1099-S?  Also, I have seen brokerage firm used 1099-B sub instead of regular 1099-B.  Are both the same?

If I read your previous response correctly, you said your version of TurboTax showed the sales expenses plus purchase cost/improvement of $155,000 on column (e) and positive $5,000 on column (g)?  My version only showed the cost basis of $144,000.  My software is up to date, so I don't understand why mine is different from yours.

I am keeping the Box F since I got a 1099-S sub, not 1099-B, even I used the method that said "yes" to 1099-B in order to enter the name of the escrow company instead of having it shown as no financial institution.

[DawnC]

Only the 1099-S gets sent to the IRS.   No, substitute forms are not the same as the actual form.   They often contain the same information, but the reporting requirements are different.   Any information that the IRS requires gets reported to them on a tax form.   The reporting requirements for the recipient are different than the requirements for the IRS.   You can see each form has different copies that each have different reporting fields, depending on who the copy is for.    

Form 1099-B  Proceeds From Broker and Barter Exchange Transactions - There are 5 copies reporting different information.

Form 1099-S  Proceeds From Real Estate Transactions, to report the sale or exchange of real estate.   This one has 3 variations.

The substitute form you received from the escrow company was not sent to the IRS.   They are getting the sales information from you on Form 8949.  The difference between what you saw on your Form 8949 and what Raif showed was the amount entered as the cost basis.  You entered 144K and he entered 155K.   Recording fees, sales commission, transfer taxes are examples of items you can add to the cost basis of your second home.   He added the expenses to the basis and you entered them on the selling expense line.   The net result is the same since you both marked it a non-deductible loss.   

Your sale should be marked Box F since it is a long-term transaction that was not reported to you on Form 1099-B.    

[bernardr123]

I have Turbotax desktop premium and I can follow the first 3 steps, however I do not see the 3 options to choose "other" and sell 2nd home. I am on the latest update of the SW, what can I do ? 

[PattiF]

Follow the instruction in the link to enter the sale of a second home. 

1. Open or continue your return in your TurboTax software
2. In the search box, search for sold second home and select the Jump to link at the top of the search results
3. Answer Yes on the Did you sell any investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the Did you get a 1099-B or brokerage statement for these sales? screen, select No
5. On the Tell us about this sale screen, select I’ll enter one sale at a time, and enter Second home (do this also for inherited homes) or Land in the Description box
6. Enter the remaining info for your sale and continue through the screens until you reach Here’s all the investment accounts we have so far
   • If you have more sales to add, select Add more sales

@bernardr123

[lynnebrad]

Hi. I am not seeing these fields in the Investment Section of 2023 Version of TT Premium. I did a test and they only seem to require you to put in the house information as if an investment and you never need specify it is a second home. 

It asks you for the purchase price and the cost basis and whether you held it long term or short. 
Am I missing something? 

Thank you    

[Mike9241]

you don't need to specify it's a second home but you can either use "second home" or address as the description.  you enter it through the investment section 

see this link for how to enter

https://ttlc.intuit.com/turbotax-support/en-us/help-article/real-property/enter-sale-second-home-inh... 

in addition, if there's a loss on the sale you must indicate that the loss is not deductible - there is a question about the loss being nondeductible further on after entry of the sale (the code is L)