Publication 523 |
2000 Tax Year |
What To Report Now
If the rules in this chapter apply to you, the reporting
requirements you may have now are explained here. (The beginning of
this chapter explains whether the rules in this chapter apply to you.)
Form 2119.
For sales before 1998, Form 2119 was used to report the sale of an
old home and any purchase of a new one within the replacement period.
You should have filed Form 2119 with your tax return for the year you
sold your old home. If you filed your return for that year before
buying a new home, you may also have to file a second Form 2119 when
you do buy your new home. If you need Form 2119 for that purpose, you
can still order it from the IRS. See chapter 5.
Form 2119 is also
available on the Internet at www.irs.gov under Prior
Years Forms and Publications.
Recordkeeping. Keep a copy of Form 2119 with your tax
records for the year of the sale. Form 2119 is also a supporting
document that shows how your new home's basis is decreased by the
amount of any postponed gain on the sale of your old home. Therefore,
you should also keep a copy of Form 2119 with your records for the
basis of your new home.
Loss reported on sale.
If you reported a loss on the sale of your home, you do not have to
file a second Form 2119 if you later buy a new home. The loss on the
sale was not deductible and has no effect on the basis of your new
home.
Reporting one-time exclusion.
If you must file a second Form 2119 and you qualify for the
one-time exclusion of gain, use Form 2119 to claim the exclusion. See
Rules That Allowed One-Time Exclusion of Gain, later, for
details.
Reporting a taxable gain.
Any taxable gain on the sale is reported on Schedule D (Form 1040).
New home purchased after return filed.
If you postponed gain from the sale of your old home and you buy
and live in a new home after you file your return for the year of the
sale but within the replacement period, you should notify the IRS by
filing a second Form 2119 and, if necessary, Form 1040X and Schedule
D.
Send the form (or forms) to the Internal Revenue Service Center
where you will file your next tax return.
New home costs at least as much as adjusted sales price.
If your new home costs at least as much as the adjusted sales price
of your old home, file the second Form 2119 by itself. This form must
include your address, signature, and the date. If you filed a joint
return for the year of sale, the form must also include your spouse's
signature.
New home costs less.
If your new home costs less than the adjusted sales price of the
old home, you must file an amended return (Form 1040X) for the year of
sale. Attach a second completed Form 2119 to report the purchase and
Schedule D (Form 1040) showing the gain you must report. You will have
to pay interest on any additional tax due. The interest is generally
figured from the due date of the original return.
New home purchased after tax paid on gain.
If you paid tax on the gain from the sale of your old home, and you
buy and live in a new home within the replacement period, you must
file an amended return (Form 1040X) for the year of sale of your old
home. Complete a new Form 2119 and include it with your amended
return. Report on Schedule D (Form 1040) any gain on which you cannot
postpone the tax, and claim a refund of the rest of the tax.
Improvements made after tax paid on gain.
If you replaced your old home but still had to pay tax on at least
part of the gain from its sale, and you make improvements to your new
home within the replacement period, fill out a new Form 2119 to
refigure your taxable gain. If your refigured taxable gain is less
than the gain you originally reported, file an amended return and
include the new Form 2119.
No new home within replacement period.
If you postponed gain on the sale of your old home because you
planned to replace it but you do not replace it within the replacement
period, you will have to file a second Form 2119. Attach it to an
amended return (Form 1040X) for the year of the sale. Include a
Schedule D (Form 1040) to report your gain.
You will have to pay interest on the additional tax due. Interest
is generally figured from the due date of the original return.
Divorce after sale.
If you are divorced after filing a joint return on which you
postponed the gain on the sale of your home, but you do not buy or
build a new home (and your former spouse does), you must file an
amended joint return to report the tax on your share of the gain. If
your former spouse refuses to sign the amended joint return, attach a
letter explaining why your former spouse's signature is missing.
Installment sale.
If you finance the buyer's purchase of your home yourself, instead
of having the buyer get a loan or mortgage from a bank, you may have
an installment sale. If the sale qualifies, you can report any part of
the gain you cannot postpone or exclude on the installment basis. For
information on reporting income from this type of sale, see
Installment sale under Reporting the Gain in
chapter 2.
Statute of limitations.
The 3-year limit for assessing tax on the gain from the sale of
your home begins when you give the IRS information that shows:
- You replaced your old home, and how much the new home cost,
- You do not plan to buy and occupy a new home within the
replacement period, or
- You did not buy and occupy a new home within the replacement
period.
This information may be on the Form 2119 attached to your tax
return for the year of the sale, or on a second Form 2119 filed later.
File the second Form 2119 with the Service Center where you will file
your next tax return. If needed, send an amended return for the year
of the sale to include in income the gain that you cannot postpone.
Example
Frank and Evelyn Smith sold their home on May 1, 1997, for $87,000.
They spent $500 on fixing-up expenses and paid a commission on the
sale of $5,200. Neither Frank nor Evelyn was 55 or older on the date
of the sale. They planned to buy a replacement home but had not bought
one before they filed their 1997 tax return.
Frank and Evelyn completed Part 1 of Form 2119 and attached it to
their 1997 return. Because they planned to buy a replacement home,
they did not include the gain on the sale in the income reported on
their return.
On April 20, 2000, Frank and Evelyn bought and moved into a new
home. This was within the replacement period because their replacement
period was suspended for a year while Frank was on extended active
duty with the Armed Forces. The cost of the new home was $77,200. This
was less than the adjusted sales price of the old home. They figure
the gain, the part of the gain on which tax is postponed and the part
on which it is not, and the adjusted basis of their new home in the
following way:
Gain On Sale |
a) |
Selling price of old home |
$87,000 |
b) |
Minus: Selling expenses |
5,200 |
c) |
Amount realized on sale |
| $81,800 |
d) |
Minus: Adjusted basis of old home |
| 63,000 |
e) |
Gain on sale |
| $18,800 |
Gain Taxed in 1997 |
f) |
Amount realized on sale |
$81,800 |
g) |
Minus: Fixing-up expenses |
500 |
h) |
Adjusted sales price |
| $81,300 |
i) |
Minus: Cost of new home |
| 77,200 |
j) |
Excess of adjusted sales price over cost of new
home |
| $4,100 |
k) |
Gain taxed in 1997 [lesser of (e) or
(j)] |
| $4,100 |
Gain Not Taxed in 1997 |
l) |
Gain on sale [line (e)] |
$18,800 |
m) |
Minus: Gain taxed in 1997
[line (k)] |
4,100 |
n) |
Gain not taxed in 1997 |
| $14,700 |
Adjusted Basis of New Home |
o) |
Cost of new home [line (i)] |
$77,200 |
p) |
Minus: Gain not taxed in 1997 [line
(n)] |
14,700 |
q) |
Adjusted basis of new home |
| $62,500 |
The Smiths file Form 1040X to amend their 1997 return to include in
income the part of their gain on which tax is not postponed. They
attach a second Form 2119 and a Schedule D (Form 1040) that includes
the taxable part of the gain.
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