 Capital
gains tax and the home-sale exclusion
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 Dear
Tax Talk,
I am in the process of selling my home. I have lived there over
two years. I just went down to sign papers and the escrow lady said
she had to send in a form for capital gains tax. I bought the house
for $189,900 and am selling it for $295,000. Minus all the fees,
I am making about $95,000.
She said since the house sold for over $250,000, I
had to pay capital gains tax since I am single. My question is,
what brings the capital gains tax into play -- is it the fact that
the sale price is more than $250,000 or is it a profit of $250,000
or more? Thanks.
-- Eric
 Dear
Eric,
Generally a closing agent such as the escrow lady is required to
report the sale of a principal residence to the Internal Revenue
Service if the seller is single and the sale price is more than
$250,000. Form 1099-S is used to report the sale price to the IRS,
and it is not used to report the amount of your gain.
Of course, the law allows you to exclude up to $250,000
in gain from the sale of your principal residence if you lived in
and owned the home for two of the last five years. Gain equals the
selling price, minus your cost, improvements, and selling and purchase
expenses that are otherwise not deducted, such as real estate taxes
and points. In your case, you estimate gain at $95,000, which is
less than the $250,000 gain exclusion that applies for single taxpayers.
Even though you received a 1099-S reporting the sale to the IRS,
you are not required to report the sale of your home on your tax
return unless the gain exceeds the exclusion amount. Schedule D
instructions for 2005 state:
If you sold or exchanged your main home, do not report it on your
tax return unless your gain exceeds your exclusion amount.
Of course, the IRS usually uses 1099 forms to match income to your
tax return. However, for reasons that are not clear, the IRS is
not as concerned about the sale of properties as it once was.
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