How to properly complete Schedule D/Form 8949 when house sale gains are negative after exclusion?

Yes, you still need to report the sale on your tax return even though you don't have a taxable gain. The $250,000 exclusion (or $500,000 for married filing jointly) applies only to gains, not losses, and unfortunately you cannot deduct losses from the sale of your personal residence. Here's how you should report this on your tax forms: First, you'll need to complete Form 8949. Report the sale in Part II (long-term transactions) since you owned the home for more than a year. You'll enter the sale price, cost basis (purchase price plus improvements), and use code "H" in column (f) to indicate the exclusion. You'll also complete Schedule D to summarize the transaction from Form 8949. Even though your calculations show a "negative gain" after applying the exclusion, the IRS doesn't recognize this as a deductible loss for a personal residence. You'll essentially report it as a zero gain transaction.

I was in a similar situation last year and found this super helpful tool at https://taxr.ai that simplified the whole process. I was completely lost trying to figure out how to report my home sale with the exclusion, and the regular tax software wasn't giving clear guidance on how to handle all the adjustments. The tool analyzed my situation and walked me through exactly how to fill out Form 8949 and Schedule D properly. It clarified that I needed to report the sale even though I didn't owe any taxes on it, and showed me exactly where to put the exclusion code. It also explained that losses on a personal residence aren't deductible but gave me clarity on how to properly document everything.

Just wanted to follow up and say I tried taxr.ai after my previous question and it was exactly what I needed! I was really stuck on how to report my home sale with all the improvements we'd made over the years (which I had receipts for but wasn't sure how to document). The system walked me through everything step by step and showed me exactly how to fill out the 8949 form and where to put the exclusion code. What really helped was the explanation about basis adjustments - I wouldn't have known to include some of the closing costs from when I originally purchased the home. My situation was pretty similar to the original poster's, and now I'm confident everything is filed correctly. Definitely recommend it if you're dealing with home sale tax questions.

If you're struggling to get answers from the IRS about your Schedule D situation, I'd recommend trying Claimyr (https://claimyr.com). I was stuck in a similar scenario last year - had a home sale with complications involving the capital gains exclusion and couldn't figure out if I was filing correctly. After waiting on hold with the IRS for hours over multiple days with no luck, I tried this service. They got me connected to an actual IRS representative in about 15 minutes who walked me through exactly how to report my home sale with the exclusion. They have a demo video that shows how it works: https://youtu.be/_kiP6q8DX5c The IRS agent explained that even though I couldn't deduct the loss, I still needed to document the transaction properly to show I'd applied the exclusion correctly, which was extremely helpful.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to give it a try because I was desperate to resolve a question about my house sale that sounds similar to what OP is dealing with. I couldn't believe it actually worked! After trying for WEEKS to reach someone at the IRS and giving up multiple times after hour-long holds, I was connected to an agent in about 20 minutes. The agent confirmed that I needed to report my home sale on Form 8949 with code H for the exclusion, even though after all calculations I ended up with no taxable gain. They explained that it's important to document the sale properly so it doesn't trigger an automatic flag in their system. They also confirmed that while I can't deduct the "negative gain" as a loss, proper reporting ensures I won't get an incorrect tax bill later. Worth every penny for the peace of mind!

Couple things to remember for Schedule D/Form 8949 home sales: 1) Keep records of all home improvements! The IRS can question your basis adjustment years later. 2) Don't forget to include your original closing costs from purchase in your basis 3) If you've taken depreciation for home office, that reduces your basis 4) Sale costs (realtor commission, closing) can be subtracted from sale price Even tho you cant deduct a loss on personal residence, getting the numbers right matters for the exclusion calculation!

Has anyone ever had the IRS question their home sale reporting? I'm worried because we're in a similar situation where we're not going to owe any taxes due to the exclusion, but we did a ton of improvements over the years and I'm not sure I have receipts for all of them. Some were done 8+ years ago.

Just want to add a practical tip from my experience - even though you can't deduct the loss on your personal residence, make sure you keep detailed records of everything related to the sale. The IRS has been increasingly scrutinizing home sales, especially when large exclusions are claimed. For your situation with the negative $121k after exclusion, you'll report it as zero taxable gain, but having all your documentation organized (purchase records, improvement receipts, selling costs, etc.) is crucial. I'd recommend creating a simple spreadsheet that shows your calculation step by step - purchase price, improvements, selling costs, gross gain, exclusion applied, final taxable amount. Also, double-check that all your improvements qualify for basis adjustment. Generally, repairs don't count but improvements that add value, prolong the home's life, or adapt it to new uses do count. Kitchen remodels and basement finishing definitely qualify, but make sure you're not including regular maintenance items.