How to Report a Home Sale Using Form 8949

While many home sales do not result in a tax bill, the IRS requires certain sales to be reported. Form 8949, “Sales and Other Dispositions of Capital Assets,” is the primary document used for this purpose. It works in conjunction with Schedule D to detail the specifics of the sale and handle the tax implications.

Determining if Reporting is Required

The requirement to report a home sale depends on two factors: the ability to exclude the gain and whether you receive Form 1099-S, “Proceeds From Real Estate Transactions.” The IRS provides the Section 121 exclusion, which allows eligible taxpayers to exclude up to $250,000 of gain, or $500,000 for married couples filing jointly. To qualify, you must have owned and lived in the property as your main home for at least two of the five years preceding the sale.

You must report the sale on Form 8949 if any portion of your gain is taxable, which occurs if it exceeds the exclusion threshold. A reporting requirement is also triggered if you receive a Form 1099-S, even if you can exclude the entire gain. Receiving this form means the IRS has been notified of the sale, and you must file the appropriate forms to reconcile the amount and claim your exclusion.

A taxpayer might also need to report the sale if they used a portion of the property for business or as a rental. In these situations, reporting is necessary to correctly allocate the gain and any depreciation previously claimed. Failing to report a required sale can lead to notices from the IRS and potential penalties.

Information Needed to Report the Home Sale

Before completing any tax forms, you must gather information to calculate the gain or loss from your home sale. This involves determining the amount realized from the sale and the property’s adjusted basis. The difference between these two figures represents your capital gain or loss.

The amount realized is the gross selling price of the home minus any selling expenses paid. These costs include real estate broker’s commissions, title insurance, legal fees, advertising costs, and other fees paid at closing.

Next, you must calculate the home’s adjusted basis, which begins with the original purchase price. This initial basis is increased by certain settlement fees and closing costs from when you bought the home. It is also increased by the cost of any capital improvements made to the property.

Capital improvements are distinct from repairs. An improvement adds value to your home, prolongs its useful life, or adapts it to new uses, such as adding a new bedroom, installing a new roof, or paving the driveway. In contrast, repairs like painting a room or fixing a leak are maintenance expenses and do not increase your basis.

How to Complete Form 8949

Once you determine that you must report the sale and have calculated the gain, you will enter this information on Form 8949. A home sale is a long-term capital asset if you owned it for more than one year. Therefore, the transaction is reported on Part II of the form for long-term sales.

At the top of Part II, you must check one of three boxes. Box F is the correct choice for a home sale reported on a Form 1099-S where the basis was not reported to the IRS. This is a common scenario for real estate transactions.

The form then requires you to fill out several columns. In column (a), provide a description of the property, such as “Primary Residence.” Columns (b) and (c) are for the dates you acquired and sold the property. In column (d), enter the gross proceeds, which should match your Form 1099-S without subtracting selling costs. Column (e) is where you enter the adjusted basis that you previously calculated.

Columns (f) and (g) are for adjustments. If you are only claiming the home sale exclusion, enter code “H” in column (f) and the amount of the gain you are excluding as a negative number in column (g). If you also have selling expenses, you would enter code “EH” in column (f). The amount in column (g) would then be the combined total of your exclusion and selling expenses, entered as a single negative number. These adjustments reduce the total gain, leaving the taxable portion to be calculated in column (h).

Transferring Information to Schedule D

Form 8949 is a supporting document that feeds information into Schedule D, “Capital Gains and Losses.” The totals from Form 8949 must be accurately transferred to ensure your tax return is correct.

The totals from Part II of Form 8949, which covers long-term transactions like a home sale, are carried over to line 10 of Schedule D. This line consolidates all long-term gains and losses detailed on Form 8949. Schedule D then summarizes all your capital asset transactions for the year.

After summarizing the information on Schedule D, the net capital gain or loss is calculated. This final figure is then transferred to your main tax form, the Form 1040. This ensures that any taxable gain from your home sale is included in your overall income.