How do I report the sale of a house and the purchase of another on my tax form?

Question

The house I sold was of lessor value than the one I purchased.

Answer 1

It no longer matters if you purchased a new home after the sale of your old home. In 1997, the rules changed. Here are the basics about selling your "principal residence."

If you owned and lived in your home for at least 2 out of the last 5 years (ending on the date of the sale of your home), the first $250,000 of your profit (gain) is tax free (excluded from tax).

If you are married- here are the basics:
1) you file your tax return "married filing joint" AND
2) EITHER spouse meets the two year ownership rule AND
3) BOTH spouse meets "living in home" 2 year requirement AND
4) Neither spouse claimed a home sale exclusion in the past two years (ending with date of sale of home).

If you meet all 4 of these, then the 1st $500,000 of profit is tax free (excluded).

If you don't meet the 2 year requirements, you may meet some exceptions (like job change) and get a "reduced" tax free amount. Also, if you are active duty military, there are special rules that lengthen the 5 year requirement.

If you still have profit (gain) after reducing the profit by $250,000 (or $500,000 if married), then the remaining profit is entered on Schedule D of your tax return.

If you need help on figuring out your profit, reading your settlement sheets, understanding "principal residence," and exception rules, and other questions, check out the links below, particularly the Home Tax Sale Webinar.

Answer 2

The purchase doesn't matter and isn't reported. There was an old rule about reinvesting the gain on a house sale into a replacement house, but that rule has been gone for a long time now.

If you owned the earlier house for at least two years of the five immediately prior to the sale, and lived in it for at least two of those same five years, you can exclude from taxes up to $250,000 of gain ($500,000 if married filing a joint return) as long as you didn't exclude gain on another house in the two years right before the sale. If your gain is less than the exclusion, you don't have to report the sale. If your gain is more than those amounts, then you'd report the sale on schedule D but would still get the $250K or $599K exclusion.

Answer 3

I don't think you have to report the sale, just the mortgage interest and taxes.

However, if you bought points on the new mortgage, you may be able to write those off, either all in this tax year or amortize them over the life of the mortgage.

If you had purchased a home of lessor value, then you may have a tax liability, UNLESS you use your life time credit. This allows you to use the equity in your home to purchase a smaller one (retirement home) without having to pay taxes on the realized profit. The kicker is that you can only do this once in your lifetime.

Answer 4

Capital Gains.
If there was no profit (which means the money you made off your old house you 'rolled over' for a down payment on the new one, or you put cash down equal to your profit) you didn't have a gain, so you need not do anything.

Answer 5

go to irs.com