Installment Sale on Primary Residence - I think??

[taxn00b]

TP lived his primary residence with a room mate for 2+ years.  Both of their names were on the property and they agreed that they owned it equally.  In 2019, they drew up a contract which outlines the fact that the room mate would make payments in 2019, 2020, and 2021 to buy the TP out of his share of the property.  In 2019, they refinanced the mortgage so that it was only in the room mate's name.  

TP's 2019 taxes are already filed and do not report the income from the sale.  It seems like the TP should qualify for a 121 exclusion on the sale of the personal residence (and any gain on the sale wouldn't have been over the exclusion amount).  Even if there was no recognized gain, the sale should have been reported on TPs 2019 tax return, right?  If so, how should it be reported in order to indicate that it qualifies for the exclusion?  And what do we do about 2020?

Thanks for your help!

[Lee B]

The timeline here is very fuzzy.

If the house sale qualified for 100 % exclusion, reporting is not required, even I always report anyway to avoid IRS Letters and overanxious clients responses.

1. When did they originally buy the house?

2. When was the date the house was refinanced?

2.  When did they sign the contract ?

3.  Did the contract specify principal payments plus interest?

 

[taxn00b]

56 minutes ago, cbslee said:

The timeline here is very fuzzy.

If the house sale qualified for 100 % exclusion, reporting is not required, even I always report anyway to avoid IRS Letters and overanxious clients responses.

1. When did they originally buy the house?

2. When was the date the house was refinanced?

2.  When did they sign the contract ?

3.  Did the contract specify principal payments plus interest?

 

1. I'm not sure... I think in 2009.  

2. Refinanced and contract signed the same day (9/18/19)

3. Contract specified that there wouldn't be any interest (<-- this is the part that has me wondering....)

[Gail in Virginia]

Did whoever changed the deed to reflect the new ownership issue a 1099S for the sale?   And even though this is an installment sale, you can elect to report the entire sale in one year.  I think the election is made just by doing it.  So the only question would be if he has to treat the amount received as including interest and report that interest on the tax returns.  Technically, I believe he does. Practically, how much can it amount to?

[taxn00b]

32 minutes ago, Gail in Virginia said:

Did whoever changed the deed to reflect the new ownership issue a 1099S for the sale?   And even though this is an installment sale, you can elect to report the entire sale in one year.  I think the election is made just by doing it.  So the only question would be if he has to treat the amount received as including interest and report that interest on the tax returns.  Technically, I believe he does. Practically, how much can it amount to?

No, there was no 1099-S issued.  The payments total $45,000.

[grandmabee]

If the person who sold the house met the rules for exclusion then nothing had to be done.  No 1099-s, no reporting on tax return.

 

[taxn00b]

On 4/15/2021 at 4:02 PM, grandmabee said:

If the person who sold the house met the rules for exclusion then nothing had to be done.  No 1099-s, no reporting on tax return.

 

Thanks!