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In November 2002, my husband and I bought our first home.

We lived in the home...
In November 2002, my husband and I bought our first home. We lived in the home until December 2005. We paid about $114,000 for the home; it sold for $133,500. After everything was said and done, we made a profit of about $11,000 on the home. According to everything that I have read, we should not had to claim the profit on our taxes because it was less than $250,000. The reason I am curious about this is because the IRS sent us a letter regarding our stimulus payment and stated that it was used toward $15,000 that we owed from 2005. We did not do anything different in 2005, except for the sale of our house.
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Answered in 16 minutes by:
7/4/2008
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,164
Experience: Taxes, Immigration, Labor Relations
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First of all - you need to find out all details from the IRS. Order the account transcript.

The transcript can be ordered by completing a Form 4506-T - http://www.irs.gov/pub/irs-pdf/f4506t.pdf or calling(NNN) NNN-NNNNand following the prompts in the recorded message. There is no charge for the transcript and you should receive it in 10 business days from the time of your request. As you need a statement of your tax account which shows changes that you or the IRS made after the original return was filed, you must request a "Tax Account Transcript". This transcript shows basic data including marital status, type of return filed, adjusted gross income, taxable income, payments and adjustments made on your account.

As you owned and used the property as a primary residence at least two out of five years before the sale - you do not need to report the sale transaction and the gain will not be taxable - . Please refer to the IRS publication 523 - http://www.irs.gov/pub/irs-pdf/p523.pdf As you met both tests - you might exclude the gain from the taxable income - up to $250,000 for single; $500,000 for married couples.

The IRS might need you to provide a proof that you owned and used the property as a primary residence at least two out of five years before the sale.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,164
Experience: Taxes, Immigration, Labor Relations
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