I had federal subsidy mortgage. Sold house within 2 years. No recapture tax. How about capital gain tax?

Question

I sold my house within less than 2 years of residency. I had Calhfa loan which is federal subsidy mortgage. I don't have to pay recapture tax because my income doesn't exceed the adjusted income limit. Should I pay capital gain though (Schedule D form 1040)? I gained $50k from the sale after deducting closing costs, etc. H&R said I only owe state tax. I got refund from federal. Do you think it's odd that I don't owe federal tax after gaining $50k? Any advice? Thank you guys, who answered my question, sorry I accidently deleted my previous question.

Answer 1

Go back to the tax office that prepared your return and have the return reviewed. You got a federal refund and owed the state. This does not mean your taxes were done wrong.

There are exceptions to the 2-year rule, and it is possible that your gain was excluded from federal tax because of one of the exceptions, such as a change in job.

If in fact you owe federal income tax on the gain, the tax office that prepared your return will amend it at no charge.

Answer 2

Since you did not live there for 2 of the 5 years prior to the sale you are not eligible for the exclusion of the gain on the sale. If you lived in the home for over 1 year the gain is taxed as a long term capital gain with the lower rate, normally 15%.

Whether you get a refund on your Federal return depends upon your liability and the total taxes withheld. If you were already in the 15% tax bracket, the LT CG rate would be only 5% and it could be possible that you'd get a Federal refund, especially if you qualified for the EITC.

Look at your copy of your Federal return. If Schedule D is attached and the gain is listed, your return was probalby prepared properly. If there is no Schedule D then your return was not properly prepared and Block will need to prepare an amended return and you'll need to file it and pay any tax due by April 17th.

Answer 3

The best source for an answer to your question is the IRS. Their number is in the phone book. You'll be on hold for a while, but you will have peace of mind. When an agent comes on the line, ask his/her name and employee ID number. This way you'll have someone to blame if they give you inaccurate information.