How does house sale affect MC premium?

[Carol1862]

Hello. Our situation:
We bought our new home in March 2020. Sold our prior home Aug 2020. First sale fell apart day of closing due to Covid...buyer lost his job. Thankfully we didn’t need the cash from that sale to move forward on our current home.

I seem to be reading and hearing a variety of answers. On one hand I hear that it’s only the “profit” that matters. We made very little on the prior home considering realtor expenses and home improvements. Our new home cost about 50,000 more than the sale of old one.

Or, is the full sale amount considered income? Which would clearly bump us into the very high monthly premium for 2021

On another note, I was receiving a subsidy with ACA for 2020 until Oct when I went on MC. (DH has been on MC). Does the sale affect the subsidy I had been receiving? Will I owe them back all of the subsidy?

Thank you.

 

[pjigar]

No need to report home sale gain if you lived in it for 2 out of 5 years, prorated to $250K limit if single filer or $500K limit if joint filer. No effect in MAGI.

 

[pb4uski]

+1 Sale of a primary residence wouldn't affect your AGI unless the gain on the sale exceeded the exemption.

 

[Souschef]

No need to report home sale gain if you lived in it for 2 out of 5 years, prorated to $250K limit if single filer or $500K limit if joint filer. No effect in MAGI.

I am sorry, but that is not quite correct. You will be receiving a 1099S for the sale price of the house. On your tax return, from that you deduct the cost of the house plus any upgrades plus selling expenses. Then the profit if any gets the 250K or 500K exemption.
I just did the taxes this last year for one of our sons who sold their house.

 

[RunningBum]

You say you've read and heard a variety of answers. I'd like to know which sources said the full sale amount counts as income, so I can avoid them.

 

[Carol1862]

You say you've read and heard a variety of answers. I'd like to know which sources said the full sale amount counts as income, so I can avoid them.

They weren’t notable sources. Just people in general stating their version of facts!

 

[Ian S]

I am sorry, but that is not quite correct. You will be receiving a 1099S for the sale price of the house. On your tax return, from that you deduct the cost of the house plus any upgrades plus selling expenses. Then the profit if any gets the 250K or 500K exemption.
I just did the taxes this last year for one of our sons who sold their house.

That's not quite right either. You may not get a 1099S if the sales price of your home is less than the exemption. That was the case for us (married filing jointly) last year. Home sold for less than $500K and we never got a 1099S.

 

[gauss]

^ When MIL sold her home, she filled out a form at closing confirming that she met the two IRS 2 of 5 year rules (occupy and ownership) that are required for the exemption. As such, she did not receive a 1099-S and we did not report the sale.

It was something like this example (see pg 2).

Note even if you receive the 1099s 'in error', you can resolve this so that is non-taxable by filling out IRS form 8949 with the proper 'adjustment' code -- assuming that you do indeed meet all the requirements to take the exemption.

-gauss

 

[RunningBum]

^ When MIL sold her home, she filled out a form at closing confirming that she met the two IRS 2 of 5 year rules (occupy and ownership) that are required for the exemption. As such, she did not receive a 1099s.

It was something like this example (see pg 2).

Yes, I think I remember filling out a form like this for a townhouse I sold for a little over $200K earlier this year, checking the boxes to indicate that this was not my personal residence. I expect to get a 1099 from the sale. I do have a profit on this. I have receipts from some improvements that will raise the basis.

 

[pb4uski]

They weren’t notable sources. Just people in general stating their version of facts!

What the heck is a "notable" source?

IMO, all of the responses are essentially saying different versions of the same thing other than the weedy details and were right and were also responsive to your original question.

What is counted as income for ACA is only any gain in excess of the principal residence exemption amount. You suggested that your gain wasn't significant... presumably it was well within the exemption amount so what flows forward to the 1040 would be $0 assuming you qualify for principal residence exemption.... so it will have no impact on ACA.

You seem unhappy with the responses here so perhaps you need to do your own research and analysis and determine your own "facts" and stop complaining.... or go hire a CPA.

 

[Carol1862]

What the heck is a "notable" source?

IMO, all of the responses are essentially saying different versions of the same thing other than the weedy details and were right and were also responsive to your original question.

What is counted as income for ACA is only any gain in excess of the principal residence exemption amount. You suggested that your gain wasn't significant... presumably it was well within the exemption amount so what flows forward to the 1040 would be $0 assuming you qualify for principal residence exemption.... so it will have no impact on ACA.

You seem unhappy with the responses here so perhaps you need to do your own research and analysis and determine your own "facts" and stop complaining.... or go hire a CPA.

Huh I’m VERY happy with every response! I am VERY confused why you think otherwise. I’ve thanked everyone as I’ve read the responses. I thought that the poster’Runningbun’ was asking me which source I read that said the amount of the sale was counted so he/she could avoid that obviously incorrect source. I let him/her know it was just a statement made from someone who obviously didn’t know the facts or rules. Not any particular source. I knew coming here I’d get answers from the very best people.

Please, I truly beg you, reconsider what you said to me as I truly appreciate each and every response.

 

[jim584672]

https://www.healthcare.gov/glossary/capital-gains/

...You don't need to include a capital gain if it's from the sale of your main home you owned for at least 5 years (and the profit is less than $250,000)....

 

[pb4uski]

Huh I’m VERY happy with every response! I am VERY confused why you think otherwise. I’ve thanked everyone as I’ve read the responses. I thought that the poster’Runningbun’ was asking me which source I read that said the amount of the sale was counted so he/she could avoid that obviously incorrect source. I let him/her know it was just a statement made from someone who obviously didn’t know the facts or rules. Not any particular source. I knew coming here I’d get answers from the very best people.

Please, I truly beg you, reconsider what you said to me as I truly appreciate each and every response.

I stand corrected. All good.

 

[Finance Dave]

The OP bought their new home before they sold the old home. I thought you could roll any profits from a sale into a new home and avoid any tax issues so long as the new home costs more than the old one...but...

1) Is that still valid?

2) Does it apply even if you sell your old home before you buy the new one?

3) yes I realize there is an exemption amount...but I thought the above applied even if you're over the exemption (for example you sell a $1M basis house for $3M, then buy a $4M house?)

We've not moved in 22 years...so I have no recent knowledge on the subject.

 

[Koolau]

I actually got burned on this one. Very much doubt this applies to Carol1862 but: We had rented our place for a very long time. We depreciated it as well. We eventually moved in and stayed the required 2 years prior to sale. So, then depreciation recapture kicked in and isn't excludable with the exemption. THAT pushed us over the limit for MC (there were some other issues that year that contributed, but D. R. was the major issue for us.) Unlikely this applies but it is real though YMMV.

 

[audreyh1]

The OP bought their new home before they sold the old home. I thought you could roll any profits from a sale into a new home and avoid any tax issues so long as the new home costs more than the old one...but...

1) Is that still valid?

2) Does it apply even if you sell your old home before you buy the new one?

3) yes I realize there is an exemption amount...but I thought the above applied even if you're over the exemption (for example you sell a $1M basis house for $3M, then buy a $4M house?)

We've not moved in 22 years...so I have no recent knowledge on the subject.

No, completely changed in the 90s. Has nothing to do with rolling gains into a new home anymore. Now you can downsize primary residence painlessly unless you have > 250K per person gain. Even then you only owe cap gains taxes on the excess.

 

[gauss]

No, completely changed in the 90s. Has nothing to do with rolling gains into a new home anymore. Now you can downsize primary residence painlessly unless you have > 250K per person gain. Even then you only owe cap gains taxes on the excess.

+1 - Also you need to live in it and own it for 2 of the last 5 years to get the exclusion.

We ran into this issue when DMIL downsized out of her house of 50 years into a condo. MIL was rather sick at the time, so DW and I did most of the work.

We were in no hurry to shut down and sell the original house due to the amount of work involved and the fact that we would be discarding MILs possessions while she was still alive.

The issue was when we started to run into limit of that you must live in the property 2 of the past 5 years as your main residence to take the exclusion.

Since she owned the house for over 50 years, the capital gains would have been significant.

Fortunately the house sold less than 3 years from the time we moved her into the condo so we were able to take the exclusion for her -- barely!

Let this be a warning to anyone downsizing their parents homes -- the clock starts running on the old home as soon as they move out of it. 3 years can go by quite quickly

-gauss


.

 

[Souschef]

To expand on whet audreyh said, and a little history. At one time you could roll the profits from one home to the next and take a once in a lifetime exclusion.
The problem came was when a couple took the exclusion, and one spouse died, the surviving spouse became a |"poisoned spouse" and if the person remarried, the couple could not take the exemption.

The law was changed in the 90's I think.

 

[RunningBum]

+1 - Also you need to live in it and own it for 2 of the last 5 years to get the exclusion.

We ran into this issue when DMIL downsized out of her house of 50 years into a condo. MIL was rather sick at the time, so DW and I did most of the work.

We were in no hurry to shut down and sell the original house due to the amount of work involved and the fact that we would be discarding MILs possessions while she was still alive.

The issue was when we started to run into limit of that you must live in the property 2 of the past 5 years as your main residence to take the exclusion.

Since she owned the house for over 50 years, the capital gains would have been significant.

Fortunately the house sold less than 3 years from the time we moved her into the condo so we were able to take the exclusion for her -- barely!

Let this be a warning to anyone downsizing their parents homes -- the clock starts running on the old home as soon as they move out of it. 3 years can go by quite quickly

-gauss

Not everyone has the means to do this, but an option could be for someone in the family to buy the house at market price so she could get the exclusion. Keep the house on the market and when it finally sells you get your money back. You wouldn't get the exclusion since it was never your main house, but the gain/loss should be negligible.

 

[pb4uski]

Great idea.

 

[sengsational]

If you do do an interfamily sale, make sure you don't have some real estate person who thinks they deserve a commission. I'd have the listing agreement end every month and keep renewing for the external sale, and just not renew it if the family sale was pending. The alternative would be to try to write in the exclusion, but that might be something you'd have to defend, which could be trouble.

 

[gauss]

Not everyone has the means to do this, but an option could be for someone in the family to buy the house at market price so she could get the exclusion. Keep the house on the market and when it finally sells you get your money back. You wouldn't get the exclusion since it was never your main house, but the gain/loss should be negligible.

We definitely thought of doing that when we were in the last 6 months or so and it wasn't selling quickly.

The only snag is that we already retained a real-estate agent to sell the house -- who also happened to be a friend. Executing the strategy of selling to ourselves might have upset that relationship so I let it play out and, in the end, it sold to a retail purchaser.

-gauss

 

[MarieIG]

If you do do an interfamily sale, make sure you don't have some real estate person who thinks they deserve a commission. I'd have the listing agreement end every month and keep renewing for the external sale, and just not renew it if the family sale was pending. The alternative would be to try to write in the exclusion, but that might be something you'd have to defend, which could be trouble.

A thought - a broker may not be needed for an interfamily sale. A (true) professional appraisal, with comps, might be of help to establish fair market value. Also, if the buyer takes out a mortgage, the appraisal done by the bank could serve as support for fair market value.

 

[sengsational]

A thought - a broker may not be needed for an interfamily sale. A (true) professional appraisal, with comps, might be of help to establish fair market value. Also, if the buyer takes out a mortgage, the appraisal done by the bank could serve as support for fair market value.

Certainly there's no need for any commission grabber when you sell to a family member. Even the selling price might not be a big deal if the person buying is going to end-up inheriting the house after the seller passes. The point I was trying to make was you need a way to keep the real estate people out of it, and if you signed contract, those are written such that you owe the commission whether they had anything to do with the sale or not. They can even claim, believe it or not, that they deserve a commission after the contract ends if they think that the deal hatched during the time when the contract was in effect. If I thought the house might not sell right away, and I was running into a deadline, I'd have the contract end well before the deadline, plus, I'd get a lawyer to write an addendum that said the real estate agents had no claim for a commission if the house was sold to a family member.