Exclusion on Residence

[Snaggletoof]

How do y'all report the sale of a residence at a profit excluded under sec. 121?

I do nothing unless there is a 1099S. If there is a profit or loss, I simply claim the basis to be equal to the sale.

Is there a better and more informative way to do this? Look forward to hearing from you.

By the way I'm at another computer and could not log on as Snaggletooth. So PRESTO!!!
the pen name of "Snaggletoof" is born! "Snaggletoof" is the same, but results from an attempted self-pronunciation of a Snaggletooth because of teeth problems....

[Gretel]

I do it the same way you do, so no news here.

[dsi]

I report the true amounts and my software takes care of the rest. That is, if the residence was purchased 1-1-00 for $400,000, and subsequently sold on 1-31-06 for $600,000 then this is exactly what I report on the Sch D.
I mark a box that forces it to show with the related §121 exclusion.

[OldJack]

I agree that if no 1099S because its not taxable I would not report anywhere on the 1040.

If it is required to be reported or a 1099S, then the instructions are clear that you show the sale price, cost basis, and resulting short-term or long-term gain on one line. The instructions say on the next line you enter a description such as "Exclusion under §121" and enter a negative gain amount upto your allowed amount to net the reported gain to zero or the proper taxable amount.

Fudging the cost basis is not appropriate in any circumstances.

[Gene V]

I've been showing the sale of resident on Schedule D in the past years, This year I decided not to show the qualifying home sale per Sch. D instruction, even if the client received a 1099-S, We'll wait and see if the client gets any notice from the IRS.

[Kram BergGold]

I report every one

When 1099-S first started, I had clients tell me they had not received one. When I looked through their settlement papers low and behold I found a 1099-S. The second reason is, what if it is discovered that they had a Form 2119 rollover many years before you started working with them which causes the gain to be higher than the exclusion or home office depreciation you did not know about. I want to CMA and show I reported all that I knew there to be.

[RLymanC]

Gene - 1099-S

Gene:
I think your decision not to report the exclusion when a 1099-S is present is about the same as not reporting a 1099-B stock sale of $150,000.00 because the basis is $150,000.00.

It's so east to do the Sch.D, can;t see any reason to cause filing a 1040X 2 years down the pike.

[Snaggletoof]

Gene V

Gene V, if indeed the IRS is instructing us to not report the sale EVEN IF A 1099-S IS ISSUED, then they have totally lost it.

What is the very purpose of a 1099S? To create a matching program so taxpayers can be found non-compliant?

Better believe I will report any 1099S somewhere. In defiance of IRS instructions if need be. If their instructions create a lot of extra work for them because of this, then they deserve it.

[dsi]

There is only one reason I report the transaction: to start the SOL. Right or wrong, that's why I do it.

[Gene V]

You guys are right, I should be reporting the 1099-S, but I'm being stubborn, just following the instruction from page D-2 Sale of Your Home-If you sold or exchanged your main home, do not report it on your tax return unless your gain is more than your exclusion amount.-Says nothing about receiving a 1099-S.
Now on the next column it says if you get a 1099-S for sale of real estate held for personal use for which you received a Form 1099-S, you must report the transaction on Schedule D even though the loss is not deductible.

If we get a letter from the IRS, I'll explain it and send a Schedule D.
I am betting on no letter from the IRS

[S T]

Regardless

Regardless of the rule changes, I still complete as if I were filing the old 2119 form. My software has a Sale of Home worksheet, so I just gather the info.

A few reasons for this, makes the client feel like I am doing my job, as all these years I have told them they would be able to use all of those home improvements when they sold their home. I encouraged them to keep those records and most of them have. This also allows me to charge for gathering this information and completing the form. And I don't have to worry about any computer matching with IRS or State at a later date.

Also as Kram pointed out, there still could be those taxpayers that have the 2119 rollover.

I must admit, that had I not gone through the exercise there were a few transactions that were very close to the side of capital gain over and above the exclusion!

Sandy

[dyne]

Drake Software instructions say just what Old Jack said:
report the gain on one line of schedule D and on the second line reflect a loss
to offset the gain with a comment about Section 121.

IRS announced a year or so ago that taxpayers are NOT required to keep records of
the cost and improvements of their personal residence. The assumption is, I imagine;
that the Section 121 exclusion will apply. But what if it does not? And what about
the depreciation recapture caused by Office in Home Expense claimed? THEN the
cost and improvements would be needed.

[Gene V]

Drake Software instructions say just what Old Jack said:
report the gain on one line of schedule D and on the second line reflect a loss
to offset the gain with a comment about Section 121.

IRS announced a year or so ago that taxpayers are NOT required to keep records of
the cost and improvements of their personal residence. The assumption is, I imagine;
that the Section 121 exclusion will apply. But what if it does not? And what about
the depreciation recapture caused by Office in Home Expense claimed? THEN the
cost and improvements would be needed.

My software (Lacerte) does the same, probably a little easier then Drake, I just check a box to force the sale to go on Schedule D.

However, I’m testing the water this year and not reporting the sale on Schedule D, if there is no gain. I know it’s easy to report the 1099-S, and I’ve always had in the past.

Here is couple paragraph on the subject:

Kiplinger News letter

If you did receive a Form 1099-S, that means the IRS got a copy as well. That doesn’t necessarily mean you owe tax on the sale, though. It could be a mistake, or the closing agent might not have had the proper paperwork. If you qualify for the exclusion to make all of your profit tax-free, don’t report the home sale, But make sure all your paperwork is in order to show the IRS if it asks.

J.K. Lasser’s
Reporting Home Sale Gain.
If the entire gain on the sale of your principal residence is excludable from income, you do not have to report the sale at all on your return. This is true even if you receive a Form 1099-S from the settlement agent showing a sales price exceeding the maximum $250,000/$500,000 exclusion.

[OldJack]

If there is a 1099S I will report the sale and exclusion on form 1040 Sch-D regardless of the obvious non-taxable amount. I do this under the same theory as my attaching other schedules to the tax return that the IRS clearly do not ask for or want for that matter.

I believe that such additional information (within reason) can save me correspondence or an audit. I believe there is a good chance that someone questioning things at the IRS would likely look at the return before assigning it to an auditor.

Since most of my clients have complicated and large tax returns, It is another reason I prefer to file a paper tax return rather than efile.