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question
I used TaxACT for five years and paid taxes for 2013. I live on a fixed income (Social Security / Disability) and had to sell my house or it would have been foreclosed on. I come away with about $ 40,000 at closing, I used to buy a car and paid the bills. Will I have to pay Capital Gains Tax on the sale of my house? I am now rents
Nancy via Facebook
Response :.
Whether or not selling your home must be reported on your tax return depends on a few factors.
Have you received 1099-S form?
The first thing to consider is whether or not you received a 1099-S form ratio of the product you received from the sale of your principal residence.
If you received a 1099-S form, the transaction must be reported on your tax return, but this does necessarily mean you have a taxable gain to report as income.
If you do not receive a 1099-S form for this transaction, you will need to determine whether a taxable gain applies. If applies a gain, you will have to report the transaction on your tax return.
Does a capital gain to apply to your sale?
You must determine whether a taxable gain applies to your sale. The IRS allows a gain of up to $ 250,000 ($ 500,000 if filing a joint return) on the sale of your main residence to be excluded from income.
To be eligible for the maximum amount of exclusion, you must meet both the property testing and use .
If you do not complete ownership and use tests , you can still qualify to exclude a portion of the gain on the sale of your main home.
ownership and use tests applicable to a period of 5 years ending on the date of sale.
- to meet the test of the property, you must have owned the home for at least 2 years in this period of 5 years.
- The use test is satisfied if you lived in the home as your principal residence for at least 2 years.
the property of use and testing shall be filled using the same 2-year period. In addition, these periods of 2 years should not be continuous.
Each test must simply be met at some point during the 5 year period ending on the date of sale.
If you meet both the ownership test and use, you qualify to exclude up to $ 250,000 of gain income from the sale of your principal residence.
If you file a joint return and both spouses meet the ownership test and use, you qualify to exclude up to $ 500,000 of income gain from the sale of your principal residence.
If you do not complete ownership and use tests , or if filing jointly and both spouses do not meet the two tests, you can still qualify to exclude part of your gain.
do you qualify to exclude a portion of the gain?
If you are eligible to exclude a portion of the gain, the exclusion amount will be recorded on the 8949 form using a control code and the amount of adjustment.
Your sales will be reported as a normal transaction with proceeds from the sale and the cost base presented according to your records.
in general, a capital gain is determined by subtracting the base cost of product sales. If the result is a positive number, you have a gain, and if it is a negative number, you have a loss.
When you qualify for the exclusion of the sale of your primary residence, the amount that qualifies for the exclusion shall be reported as an adjustment amount
This amount adjustment is then taken into account to determine your overall gain (if any) on the sale of your principal residence. The overall gain is then reported on Schedule D as a capital gain income
Example :.
Jerry is one registrant who sold their principal residence in 2013. Jerry had this house for 7 years before selling (test property) and occupied the house as his principal residence for every 7 years (use test).
Jerry bought the home for $ 125,000 and sold the house for $ 0,000. Normally, this should generate a gain of $ 75,000 but since Jerry meets both proprietary tests and use, they qualify to exclude up to $ 250,000 of gain on the sale.
Therefore, Jerry has no taxable gain on the sale of the principal residence and is not required to report the transaction on his tax return.
However, Jerry received a 1099-S form reporting product sales of $ 0,000. Jerry enters this transaction in its TaxACT return and it will be carried over to 8949. form
As is eligible for exclusion, TaxACT enter an adjustment amount of $ 75,000 the 8949 form for this transaction, giving Jerry a net gain of $ 0 on this transaction.
If Jerry did not receive a 1099-S form for this transaction, it would not have to report the transaction on his tax return.
However, if Jerry chooses to report the transaction to his return, the exclusion amount will still be reported.
TaxACT will guide you step by step from the sale of your principal residence on your taxes and will answer any questions along the way.
maximum exclusion allowed by the IRS applies only to the sale of your principal residence.
If you sold a holiday home, second home, or any home that is your primary residence, you must report the entire gain as income from capital gain on your tax return.
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