Sold a primary residence

[CedarSpice]

We sold our primary residence in MN for $490k and purchased another house in AZ for $309k.  How can we expect it to affect our taxes?

[xmasbaby0]

Purchasing another home is irrelevant as far as capital gains tax.

SALE OF HOUSE

If your gain was more than  $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return.  Whether you re-invested the gain in to another house is irrelevant.  If you  have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

• If you are using online TT, you need Premier or Self-Employed software to report the 1099-S

Will you be itemizing mortgage interest, property tax and/or loan origination points?  Watch for the 1098's from your lender(s).

Go to Federal> Deductions and Credits> Your Home to enter mortgage interest, property taxes, and loan origination fees (“points”) that you paid in 2023 when you prepare your 2023 return next year.  You should have a 1098 from your mortgage lender(s) that shows this information.  Lenders send these in January/early February.

Home Ownership

There is not a first time home buyers credit on a Federal return. That ended in 2010. If your state has such as credit, you will be able to enter it when you prepare your state return.

Buying a home is not a guarantee of a big refund.  Your deductions for homeownership combined with your other deductions (if any) must exceed your standard deduction to change your tax due or refund. If you purchased your home late in the year, you do not even have a full year of home 

ownership deductions.

Your closing costs on your new home are not deductible except for prepaid interest, prepaid property tax or loan origination fees.  There are no deductions for appraisal, inspections, title searches, settlement fees. etc.

Your down payment is not deductible.

Your homeowners insurance for fire, hazard, flood, etc. is not deductible for your own home.

Home improvements, repairs, maintenance, etc. for your own home are not deductible.  

Homeowners Association  (HOA) fees for your own home are not deductible.

STANDARD DEDUCTION

Many taxpayers are surprised because their itemized deductions are not having the same effect as they did on past tax returns.  The new higher standard deduction and the elimination of certain deductions, as well as the cap on state and local taxes have had a major impact since the new tax laws went into effect beginning with 2018 returns.

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts)   The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.

Your standard deduction lowers your taxable income.  It is not a refund.  You will see your standard or itemized deduction amount on line 12 of your 2022 Form 1040.

2023 STANDARD DEDUCTION AMOUNTS

SINGLE $13,850  (65 or older/legally blind + $1850)

MARRIED FILING SEPARATELY $12,850  (65 or older/legally blind + $1500)

MARRIED FILING JOINTLY $27,700  (65+/legally blind) )  + $1500 per spouse

HEAD OF HOUSEHOLD  

[RyanH5]

Taxpayers who sell their primary residence can exempt up to $250,000 ($500,000 if married filing jointly) of gain from their taxable income if they meet the following conditions: 

• Must be the primary residence of the taxpayer claiming the exemption for 24 out of the 60 months prior to the sale- determined by the number of nights spent in it if taxpayer owns more than one home
• Must have owned the home for at least 24 out of the 60 months prior to the sale
• The home must not have been acquired in a like kind exchange
• Must not have taken the exclusion on another home in the prior two years

Gain is calculated by subtracting the basis (purchase price plus improvements) from the sales price.
If you do not qualify for the exclusion due to the time periods lived in or owned, you may be able to qualify for a partial exclusion if the reason you moved was due to health reasons, a job change, or other unforeseen events.

Any amounts of gain that do not qualify for the exclusion will be taxed as a capital gain. If there is a loss on the sale of a personal residence, that loss is disallowed for tax purposes.

I will assume that you are changing residencies from MN to AZ. This will likely mean that in the year of sale, you will also need to file a part year residence tax return in both states.