Sold house, capital gains tax?

Question

We bought the house in June 2004 and sold in Sept 2007. It was our primary (and only) residence for the whole time period. I was perusing tax manuals and it is my uderstanding that we can exclude any money we made because it was less than $250,000; we owned (well it was mortgaged does that count as owned?) the house, and we lived in the house for over 3 years. Is my understanding correct that we can exclude our gain on our taxes?

Answer 1

Based on your information, the gain on the sale of your home is tax-free.

You do not have to report this sale on your tax return, but keep the paperwork for a few years anyway.

Answer 2

Yes. Here is the info
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.
* You meet the ownership test.
* You meet the use test.
* During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

Ownership and Use Tests
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test).
If you can exclude the profit, then you don't need to report the sale.

Also if both the spouses meet the requirement, they you can exclude $500,000.

Answer 3

I'd still show the transaction on my Schedule D since the IRS will be receiving a 1099 form showing the proceeds and may want to cross check this information with the information shown on your return.

Show the gain, then immediately underneath write "Section 121 exclusion" and show the gain amount as a negative.

Answer 4

You are correct, as long as you lived in the house for any three of the past five years. It seems that you qualify in that regard, so your gain should not be taxed.

Answer 5

Yes, your understanding is correct.