How to report capital gains on primary home sale with 250k exclusion on the new 1040 form?

This is a common area of confusion! When you receive a 1099-S for the sale of your primary residence, you do need to report the sale on your tax return, even if the gain is fully excludable under the $250k/$500k exclusion rules. The proper way to handle this is to report the sale on Schedule D and Form 8949. On Form 8949, you'll report the sales price and your basis (original purchase price plus improvements). Then in column (f) you'll show your gain. In column (g), you'll enter code "H" and in column (h) you'll enter the amount of gain you're excluding (up to $250k for single filers). This effectively zeroes out the taxable gain. The gain flows from Form 8949 to Schedule D, where the exclusion is applied, and then only the taxable portion (if any) flows to Schedule 1, line 13. If your entire gain is excluded, nothing should appear on Schedule 1, line 13. Don't skip reporting it altogether, even though the IRS publication suggests you might not need to report it. Since you received a 1099-S, the IRS is expecting to see this transaction on your return.

After dealing with the exact same issue last year, I found taxr.ai (https://taxr.ai) super helpful for figuring out how to handle my primary residence sale. I was about to file with the full amount on Schedule 1 like you were thinking, which would've cost me thousands in unnecessary taxes! What taxr.ai did was analyze my situation and quickly identified that I needed to use code "H" on Form 8949 to exclude the gain. The tool walked me through exactly how to complete Schedule D properly so that my excluded gain didn't flow to Schedule 1. It also explained that since I received a 1099-S, I absolutely had to report the sale even though the gain was excluded. The tool even showed me examples of properly completed forms for my situation, which made it so much clearer than trying to decipher IRS instructions.

I wanted to update everyone - I tried taxr.ai after being skeptical and I'm really glad I did. After uploading my 1099-S and home improvement records, it actually spotted that I had been calculating my basis incorrectly. I had forgotten to include about $23,000 in improvements from a bathroom remodel we did 3 years ago! The tool walked me through exactly how to fill out Form 8949 with the correct exclusion code and how to ensure that none of the excluded gain flowed to Schedule 1. It basically confirmed everything that was said earlier, but with specific guidance for my situation. What I found most helpful was the explanation of why you need to report the sale even when using the exclusion - apparently the IRS matches 1099-S forms to tax returns, and not reporting it can trigger unnecessary scrutiny. Now I'm confident my return is correct and I won't be paying taxes on gains that should be excluded!

For anyone struggling to get answers directly from the IRS on this issue - I was stuck on hold for hours trying to get clarification about the primary residence exclusion. Then I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 15 minutes. They have this system that navigates the IRS phone tree and waits on hold for you, then calls when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly what others have said - you MUST report the sale on Schedule D and Form 8949 if you received a 1099-S, but you use code "H" to exclude the applicable gain (up to $250k single/$500k married). The properly completed Schedule D will result in zero gain flowing to Schedule 1 line 13 if you're fully under the exclusion amount. This saved me from making a huge mistake because I was about to just omit reporting it altogether based on that confusing IRS publication. The IRS agent mentioned they see this mistake frequently and it often triggers notices or audits.

I need to eat my words and update everyone. After being completely skeptical about Claimyr, I decided to try it because I was desperate for answers about my primary residence sale. I've been trying to call the IRS for two weeks with no luck. The service connected me to an IRS representative in about 25 minutes (during peak season!). The agent confirmed exactly how to handle the home sale exclusion on Form 8949 and Schedule D. The key points the agent emphasized: 1. You MUST report the sale if you received a 1099-S, even if the entire gain is excluded 2. Use code "H" in column (g) on Form 8949 3. Put the excluded amount (up to $250k) in column (h) 4. The net result should be that no gain flows to Schedule 1 if you're under the exclusion amount This was exactly the clear, specific information I needed. Having an actual IRS agent confirm the proper procedure gave me confidence to file correctly. What would have been another frustrating day on hold turned into a quick, productive call.

Does anyone know if selling a house that was converted from a rental property back to a primary residence complicates this exclusion? I lived in my house for 3 years, rented it out for 2 years, then moved back in for 3 more years before selling. I think the rules are different for converted properties.

I'm wondering about state taxes too. Do most states follow the federal $250k exclusion? I know I probably wont owe federal tax on my home sale but do I need to worry about state taxes? I'm in California if that matters.

Just wanted to add one more important point that I learned the hard way - make sure you have good records of your home improvements before you calculate your basis! I almost missed out on about $15,000 in basis adjustments because I didn't keep receipts from a kitchen renovation I did 4 years ago. For the $250k exclusion to work properly on Form 8949, you need to calculate your gain correctly first (sales price minus basis). Your basis includes your original purchase price PLUS qualified improvements like renovations, additions, new roofing, etc. The higher your basis, the lower your gain, and the more likely you'll stay under the $250k threshold. I had to dig through old credit card statements and contractor invoices to reconstruct my improvement costs. If you're in the same boat, don't forget about things like new HVAC systems, flooring, bathroom remodels, deck additions, and even some landscaping costs. These can add up to tens of thousands in additional basis. The IRS Publication 523 has a good list of what qualifies as improvements vs. repairs. Improvements add to your basis, but regular maintenance and repairs don't.

I went through this exact situation last year and want to emphasize how crucial it is to get this right! Emma, you're absolutely on the right track questioning whether that $187k should show up on line 13 of Schedule 1 - it definitely shouldn't if your entire gain qualifies for the exclusion. The key thing that tripped me up initially was thinking I could just ignore the 1099-S since my gain was under $250k. That's wrong! You must report it, but here's the correct process: 1. Complete Form 8949 showing your sale details 2. In column (g), enter code "H" 3. In column (h), enter your excluded amount (up to $250k for single filers) 4. This flows to Schedule D, which should show zero taxable gain 5. Nothing should appear on Schedule 1, line 13 if fully excluded I also learned that keeping detailed records of home improvements is absolutely critical for calculating your basis correctly. I found an additional $12,000 in improvements I had forgotten about, which reduced my gain even further. Don't skip reporting the sale just because it's excluded - the IRS expects to see this transaction on your return since you received a 1099-S. Getting this wrong could trigger an audit or notices down the road.