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Schedule D Gain on sale of a home

Forum|Forum|1 year ago
January 3, 2025
5 replies
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Hi, Everyone. I am helping a client who sold their home in 2021. The Purchase Price was 111k in 2001, but it sold for 520k in 2021, and the total expenses, including the mortgage payoff, are 256k. I am creating their return since they did not file for the gain realized. It is my first time working on Schedule D. I am finished with the return and need to know if it is correct or if it is possible for someone to give me some pointers on what to check for to make sure the return is correct. The return shows a loss on the sale of 103k. Does this seem right?

The client was 72 at the time of the sale of the property.

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Best answer by TaxGuyBill

Thank you. Is the payoff amount wholly absent from the return? If so, may I have a reference or article to refer to if the client asks why?

I also reached out to the client regarding repairs in 20 years. Hopefully, she has information since I had to confirm the purchase price on Zillow.

@rose323 wrote:

Thank you. Is the payoff amount wholly absent from the return? If so, may I have a reference or article to refer to if the client asks why?

It might help to think of some hypothetical examples.

Let's say taxpayer A buys a house for $100,000, in cash (no mortgage). The next day, he sells it for $100,001 (no mortgage to pay off). He would have a taxable gain of $1.

Now let's say taxpayer B buys a house for $100,000, with a $100,000 mortgage. The next day, he sells it for $100,001 (and pays off his $100,000 mortgage). If the mortgage payoff was a deduction, that would mean there would be LOSS of $99,999. That doesn't make sense, right?

IRonMaN

Level 15

Beep, beep, back up. The mortgage payoff has nothing to do with basis.

Slava Ukraini!

A

athaureaux6

Level 7

Hi, I think you need to provide more information. The numbers just do not add up. How did you get to a loss of 103K? Or you entered something wrong, or you are missing information in your question. Thank you.

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rose323Author

Level 5

I am filling out the Home Sale Worksheet, and 1a is the purchase price of 111,000. In the next section, (2) Increases to Basis, I entered all the legal fees, commissions, title charges, escrow charges, and Misc. Charges Government and transfer charges. I also added the payoff amount under that section (2) for a $224,000 payoff amount.

IRonMaN

Level 15

Line 2f should be zero, not 250,000

Slava Ukraini!

G

garman22

Intuit Community Champion

just on the face of it, you have a gain from the 2 numbers provided. The mortgage owed has nothing to do with the capital gain.

There are more factors at play here.

IRonMaN

Level 15

As a side note, why are you trying to file a 2021 return now? You say "they" which would seem to indicate a couple and if it was their primary residence they would be able to exclude a properly calculated gain of up to $500,000.

Slava Ukraini!

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rose323Author

Level 5

The client is single, with 250k exclusion. She received the letter from the state of California, and client 72 did not reach out to consult if she needed to file for the gain. She is reaching out since the letter gives her until 01/06/2024 Monday to file 😞

BobKamman

Level 15

"I am creating their return since they did not file for the gain realized"

"They" implies more than one owner/seller. Was she single when the property was purchased? If not, when did the co-owner die? Who prepared the 2021 return? Has anyone asked that person why the sale was not reported?

The house was obviously refinanced, if the mortgage payoff was twice the original purchase price. That's an additional reason that mortgage payoffs are not deductible from the gain. Otherwise, everyone with a taxable gain would just refinance before selling.

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rose323Author

Level 5

Thank you to everyone for their help. The advice was constructive, and I could communicate effectively with the client. Everyone's response was awesome!

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