Serious Error for Reporting Gain on Home Sale when Married Filing Separately

[MikeDemler]

In IRS Publication 523, it states "If single or married filing separately, figure gain or loss as an individual." And, "If the home you sold had multiple owners, your gain or loss is the gain or loss on the entire sale multiplied by your percentage of ownership".

But TurboTax Premier doesn't do this. I'm working on my return for Married Filing Separately, and the step-by-step procedure doesn't even ask if  I shared ownership with my spouse, attributing 100% of the gain to me. This is even though drilling down into forms shows the worksheet with checkbox's for "Owner of home is: Taxpayer, Spouse, or Joint". I tried overriding the Gain on Sale (line 7) , dividing the amount the program calculates in half, but it makes no difference in the amount of taxes Turbotax says I owe. 

There are other questions and checkboxes in the worksheet section titled "Qualifying For and Electing the Exclusion for Sale of Your Main Home", and the software doesn't ask those questions either.  Once again, checking the boxes manually makes no difference in TurboTax's calculations. 

Help!!!

[hbl3973]

MileDemler,

Did you try simply dividing the sales price and the cost basis by two to work around this issue?  Not clear why filing separately as the gain exclusion is $250k for each of you, but there are some financial or personal reasons to do so.  I do have to report a home sale this year but we're filing jointly.

[MikeDemler]

The reasons my wife and I file separately are unrelated to this particular issue. It's the best arrangement for us, and we've been doing it since we got married.

Yes,  I can try to divide everything by two, but that won't match what is reported on the 1099-S.  Furthermore, TurboTax does things backwards. I should be able to manually enter the amounts in Form 8949 first, as the IRS instructs, and then transfer that to Schedule D.  Instead, TurboTax populates 8949 (which it won't let me open) from Schedule D, after (incorrectly) completing the Home Sale worksheet. 

It's just plain wrong! 

[fanfare]

"that won't match what is reported on the 1099-S. "

In Description, enter "50% interest in <something>"

Then IRS will know to multiply by two and that will match the 1099-S.

You have to make this adjustment yourself when entering the amounts.

you can't access Form 8949 directly in any situation.

@MikeDemler 

[MikeDemler]

Thanks for confirming what I already knew.

TurboTax handles this situation incorrectly. 

[fanfare]

are you able to cajole TurboTax into putting the correct amounts on your Schedule D and Form 8949?

@MikeDemler 

[hbl3973 · Accepted solution]

MikeDemler,

I've put in a request to enhance the home sale interaction to allow 8949 code H adjustment to the gain.  The best workaround I can come up with is to first enter the home sale as given on the 1099-S and then immediately go to the Stocks & Bonds sales area and input an entry with no financial institution and a description "1099-S adjustment" .  You then put in zeros for the sales and cost basis and continue on until you reach the screen which shows an option that some or all of the gain belongs to someone else.  Enter the amount of gain to remove as a negative number.  On the LT 8949 I was able to see the two entries together under checkbox F for long term not reported on 1099-B.  The code for the adjustment is shown as N rather than the correct H, but the information is there at a glance for the IRS to see.

[MikeDemler]

Thanks @hbl3973. I'll take a look at that workaround. If Intuit would just follow the IRS instructions, this would be so much easier. I specifically paid for Premium in anticipation of this house-sale reporting, and it's been a waste. If I have to do it manually anyway.. what a piece of junk. After many years using this software.. (are you listening Intuit?).. not so sure I'll use it again.

[MikeDemler]

Here's an update.   My wife uses a CPA to do her (more complex) tax return. The method he used to properly allocate our split share of the home-sale proceeds is much simpler, and more reasonable than dividing everything by two just to make TurboTax do the right thing. 

The simple answer: add your spouse's share of the proceeds to the selling expense. 

That allows reporting a selling price that matches the 1099-S, as well as using the actual adjusted basis of the home sold.  I manually did this in the TurboTax Home Sale worksheet, and it works!

Now Intuit... use this for your step-by-step procedure!