We are retired and sold our second home in Arizona this year. We bought it 12 years ago and have a profit to declare. Our previous tax returns have been short form since we do not have enough deductions . This year with the long term capital gains on the sale of the house, will we have to itemize our deductions? What kind of deductions are allowed for the sale of the house?
There has not been a "short form" since 2017. Everyone uses a Form 1040. You are not required to itemize. If you will have enough itemized deductions to exceed your standard deduction, then you can choose to enter itemized deductions.
Does the itemized deductions for the house sale which reduces the long term capital gains count toward the standard deductions of our overall tax return?
Itemized deductions on Schedule A include things such as medical expenses, mortgage interest, property taxes and charitable contributions.
Deductions against the sales price of a house (for example, closing costs, commissions and the like) are not Schedule A itemized deductions. They are adjustments to the amount of taxable gain on the sale of the house.
Unless you have a larger amount of Schedule A itemized deductions than your standard deduction, you are better off taking the standard deduction. This does not prevent you from counting sales expenses when calculating the capital gain on the sale of your house.
When you sell a home, you can deduct costs associated with selling that home whether you claim the standard deduction, or you itemize; costs associated with selling your house are deducted from the sales proceeds that are claimed on Schedule D.
Typical costs that are deducted from the sales proceeds when one sells one's house are:
-Selling costs
-Home improvements and repairs getting the house ready for sale.
-Any capital improvements made to the home
-The amount that you originally paid for the home when you purchased it.
For more detail, please see https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6tbMe3Dy?srsltid=AfmBOoruS9D2ZxLV1rDxgRtXCtVfTcj1pWtF2kPPJ9d83jwkBjG7BpWx