Sale of Residence

[Yardley CPA]

I have a young married couple who, back in 2006, considered moving from New Jersey to Texas. They went so far as to purchase a home in Texas in September 2006. Shortly after purchasing the home, a new job opportunity caused them to rethink their plans and they decided to stay in New Jersey. They never moved to Texas and never occupied the Texas home.

Since they planned on moving to Texas, they sold their primary residence in New Jersey for a gain that fell under the exclusion rules. They ended up living with the wife's parent's (I give them credit, I couldn't have done that) for almost a year until they found another home to purchase in New Jersey. During this entire period, they paid a mortgage and real estate taxes on the Texas home.

In early January 2008, they sold the Texas home for $7,500 less than they paid for it. My clients received a 1099-S reflecting the selling price. I realize there is no opportunity to deduct the loss on the sale, however, in reading IRS Publication 523, Selling Your Home, it indicates the sale must be reflected on Schedule D either line 1 or 8. When I complete the tab on ATX's Schedule D - Sale Principal Residence, it does not carry the information to Page 1 of Schedule D. Is that correct? Should the information flow to Schedule D, Page 1, Line 8 (as Publication 523 indicates?) Any suggestions?

[TAXBILLY]

But it wasn't a sale of a principal residence since you said they never lived in it.

I would enter it on Schedule D just like you would enter a sale of long term stock and make the cost basis the same as the selling price.

taxbilly

[David1980]

I'd be tempted to treat that as investment property (and allow the loss) since they never lived there.

However, it's a good catch on what IRS Pub 523 says and I agree with your assessment for personal home. I tried it in another software and it too failed to report it to Schedule D. My guess is the programmers are only looking at Schedule D instructions page D-2 and not Pub 523 which clarifies the loss/1099-S situation. Can you manually add it on Schedule D?

[Yardley CPA]

I'd be tempted to treat that as investment property (and allow the loss) since they never lived there.

However, it's a good catch on what IRS Pub 523 says and I agree with your assessment for personal home. I tried it in another software and it too failed to report it to Schedule D. My guess is the programmers are only looking at Schedule D instructions page D-2 and not Pub 523 which clarifies the loss/1099-S situation. Can you manually add it on Schedule D?

I was considering overriding it and posting it on Schedule D, Line 8. Just not sure of the ramifications of that.

[jainen]

>>it indicates the sale must be reflected on Schedule D either line 1 or 8<<

I think the sentence you are referring to begins, "If you have a loss on the sale of your MAIN home." Anyway, Pub 523 does not claim to be either regulations or instructions. Still, you might as well do what it says, which is to enter -0- in column (f), if you believe this is personal-use property for which a tax loss is not allowed.

In my opinion, the original intention was obviously changed by external events, and what actually happened is that they held it for its value, and sold it when the market started down. Treat it like a long term investment loss.

[Yardley CPA]

If you complete Schedule D, Line 8 input screen and indicate the transaction type as a "Personal Sales," it does not calculate and carry the loss. I believe that is what I will do.

Thanks to all for responding!

[OldJack]

>>Treat it like a long term investment loss.<<

I agree with Jainen that this could be considered investment property and a loss could be claimed on 1040 Sch-D.

Leave that input field blank.