Tax Implications of Selling Personal Residence

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Goodman60
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Tax Implications of Selling Personal Residence

Post by Goodman60 » Fri Aug 25, 2017 9:19 am

So what are the tax ramifications of selling my personal residence? There was very little, if any, capital gain. Certainly nothing near $250,000. The closing agent did ask for my SS number, but I did not receive a 1099 at closing like I think I remember when I sold my last house a generation ago. Do I even need to report this sale? What about here in the Commonwealth of Pennsylvania? I've lived in the house as my personal residence for years and, as I said, there is little capital gain.

I guess my REAL question boils down to: What reporting requirements am I subjected to, for both Federal and Pennsylvania tax returns?

chuckb84
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Location: New Mexico

Re: Tax Implications of Selling Personal Residence

Post by chuckb84 » Fri Aug 25, 2017 9:27 am

You do need to report it, or you'll get a letter from the IRS Automated Underreporting system, like I did :(. I did not receive a 1099 and I knew I was well under the $500K limit for a married couple, so didn't report it. Got the letter, and they even accepted a phone call from me as proof I didn't owe anything, and they sent me a letter to confirm that everything was okay.

z91
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Re: Tax Implications of Selling Personal Residence

Post by z91 » Fri Aug 25, 2017 11:02 am

Yep..better to report it than not. To take an extreme example, if a public company decided they owed exactly zero taxes, they would still have to report it to the IRS.

pshonore
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Re: Tax Implications of Selling Personal Residence

Post by pshonore » Fri Aug 25, 2017 11:41 am

Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.

Gill
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Location: Florida

Re: Tax Implications of Selling Personal Residence

Post by Gill » Fri Aug 25, 2017 11:54 am

pshonore wrote:
Fri Aug 25, 2017 11:41 am
Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.
Sorry, that's incorrect and was repealed many years ago.
Gill

pshonore
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Re: Tax Implications of Selling Personal Residence

Post by pshonore » Fri Aug 25, 2017 12:22 pm

Gill wrote:
Fri Aug 25, 2017 11:54 am
pshonore wrote:
Fri Aug 25, 2017 11:41 am
Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.
Sorry, that's incorrect and was repealed many years ago.
Gill
This is an unusual issue. Here's something from a Fox Business 2012 article:

http://www.foxbusiness.com/features/201 ... -sale.html
To arrive at your gain amount, you first must establish your basis in the home. For most people, says Trinz, this is what you paid for the residence and all capital improvements you've made, such as adding a room or finishing a basement. Also, if you sold a residence prior to the 1997 law change and rolled the profit into the home you're now selling, you must account for that rollover amount; your basis will decrease by the amount of gain you postponed years ago.
The $250K/500K exclusion still applies of course, but your basis to figure gain is reduced.

Here's another - http://www.shaneybrookassoc.com/417/Selling-Your-Home/

curmudgeon
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Re: Tax Implications of Selling Personal Residence

Post by curmudgeon » Fri Aug 25, 2017 12:28 pm

In general, if you fit under the exclusion amounts, you don't need to report anything. This DOES depend on you having filled out forms correctly in the sale process to identify the proper conditions to the escrow holder, otherwise they will report the sale in a way which may trigger IRS questions (the phrasing of the form was pretty odd when we recently sold).

see IRS pub 523 (excerpt follows)
------------------
Reporting Gain or Loss on Your Home Sale
Determine whether you need to report the gain from your home. You need to report the gain if ANY of the following is true.

- You have taxable gain on your home sale (or on the residential portion of your property if you made separate calculations for home and business) and don’t qualify to exclude.

- You received a Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.

- You wish to report your gain as a taxable gain even though some or all of it is eligible for exclusion. You may wish to do this if, for example, you plan to sell another property that qualifies as a home within the next two years, and that property is likely to have a larger gain. If you choose to report, rather than exclude, your taxable gain, you can go back later and undo that choice by filing an amended return, but only within 3 calendar years after the year of sale.

If NONE of the three bullets above is true, you don’t need to report your home sale on your tax return.

MarkNYC
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Re: Tax Implications of Selling Personal Residence

Post by MarkNYC » Fri Aug 25, 2017 12:32 pm

Gill wrote:
Fri Aug 25, 2017 11:54 am
pshonore wrote:
Fri Aug 25, 2017 11:41 am
Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.
Sorry, that's incorrect and was repealed many years ago.
Gill
Gill,

I believe pshonore is correct. In 1997 the law was repealed that allowed a gain on sale of a principal residence to be deferred by buying a new residence of at least equal value. The deferral of gain was replaced by the current principal residence exclusion of $250k/$500K. But the adjusted basis of any principal residence sold after 1997 still needs to be reduced by "any gain you postponed from a home you sold before May 7, 1997" - IRS Pub 523.

IRS Form 2119 that tracked the deferred gains was discontinued in 1998, and the IRS does not have records prior to that. And most if not all taxpayers have forgotten about any deferred gains they may have had 20+ years ago. So, as a practical matter, the deferred gains from homes sold prior to May 7, 1997 have effectively disappeared.

MarkNYC
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Joined: Mon May 05, 2008 7:58 pm

Re: Tax Implications of Selling Personal Residence

Post by MarkNYC » Fri Aug 25, 2017 12:59 pm

chuckb84 wrote:
Fri Aug 25, 2017 9:27 am
You do need to report it, or you'll get a letter from the IRS Automated Underreporting system, like I did :(. I did not receive a 1099 and I knew I was well under the $500K limit for a married couple, so didn't report it. Got the letter...
In your case, a 1099-S would have been issued for the sale. You may not have received your copy, but the IRS received their copy. Without a 1099, the IRS Automated Underreporting System would have no knowledge of a sale that you left unreported on your tax return.

The filing and mailing of Form 1099-S is inconsistent, so it's probably best to always report the sale, regardless of whether a gain or loss.

Katietsu
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Re: Tax Implications of Selling Personal Residence

Post by Katietsu » Fri Aug 25, 2017 1:18 pm

A 1099-S is NOT required if the party who would otherwise file it, eg the lawyer handling the closing, has sufficient knowledge to reasonably expect that there are no taxable capital gains. I do not remember exactly how this is worded. So, review what curmudgeon wrote and do not need to report if the sle meets those requirements.

PA rarely follows federal rules. But, in this case, the state rules are similar. Here is a brochure with more details.

http://www.revenue.pa.gov/FormsandPubli ... ev-625.pdf

Swansea
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Re: Tax Implications of Selling Personal Residence

Post by Swansea » Fri Aug 25, 2017 1:51 pm

MarkNYC wrote:
Fri Aug 25, 2017 12:32 pm
Gill wrote:
Fri Aug 25, 2017 11:54 am
pshonore wrote:
Fri Aug 25, 2017 11:41 am
Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.
Sorry, that's incorrect and was repealed many years ago.
Gill
Gill,

I believe pshonore is correct. In 1997 the law was repealed that allowed a gain on sale of a principal residence to be deferred by buying a new residence of at least equal value. The deferral of gain was replaced by the current principal residence exclusion of $250k/$500K. But the adjusted basis of any principal residence sold after 1997 still needs to be reduced by "any gain you postponed from a home you sold before May 7, 1997" - IRS Pub 523.

IRS Form 2119 that tracked the deferred gains was discontinued in 1998, and the IRS does not have records prior to that. And most if not all taxpayers have forgotten about any deferred gains they may have had 20+ years ago. So, as a practical matter, the deferred gains from homes sold prior to May 7, 1997 have effectively disappeared.
This is consistent with the advice I got from my accountant a couple of months ago.

Gill
Posts: 4459
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Tax Implications of Selling Personal Residence

Post by Gill » Fri Aug 25, 2017 4:53 pm

MarkNYC wrote:
Fri Aug 25, 2017 12:32 pm
Gill wrote:
Fri Aug 25, 2017 11:54 am
pshonore wrote:
Fri Aug 25, 2017 11:41 am
Note that if you deferred a gain when you sold your house a "generation" ago, that deferred gain reduces the basis of the house you recently sold.
Sorry, that's incorrect and was repealed many years ago.
Gill
Gill,

I believe pshonore is correct. In 1997 the law was repealed that allowed a gain on sale of a principal residence to be deferred by buying a new residence of at least equal value. The deferral of gain was replaced by the current principal residence exclusion of $250k/$500K. But the adjusted basis of any principal residence sold after 1997 still needs to be reduced by "any gain you postponed from a home you sold before May 7, 1997" - IRS Pub 523.

IRS Form 2119 that tracked the deferred gains was discontinued in 1998, and the IRS does not have records prior to that. And most if not all taxpayers have forgotten about any deferred gains they may have had 20+ years ago. So, as a practical matter, the deferred gains from homes sold prior to May 7, 1997 have effectively disappeared.
Mark, Thanks. I see you point that those deferred gains still affect basis on homes that were acquired before 1998. I'm sure most taxpayers have conveniently "forgotten" about those deferred gains. I guess I was thinking of my personal situation where I have bought and sold several homes since then and knew it no longer applied to me. Thanks for the clarification.
Gill

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