Just received IRS notice claiming I didn't report my home sale - need advice

You're absolutely right about not owing taxes on the sale of your primary residence. The IRS allows an exclusion of up to $250,000 in capital gains for single filers and $500,000 for married filing jointly, as long as you owned and lived in the home as your main residence for at least 2 out of the 5 years before selling. Your situation is actually pretty common. The title company is required to report the sale to the IRS via a 1099-S, but that doesn't automatically mean you owe taxes. The IRS computer system sees this form and flags your return since it doesn't see a corresponding Schedule D. In your case, I wouldn't recommend amending your return. Instead, respond to the CP2501 notice by writing a letter explaining that this was your primary residence, you lived there for the required time period, and your gain falls under the exclusion. Include a copy of the 1099-S, documentation showing when you purchased the home (settlement statement or deed), and when you sold it. Also include evidence it was your primary residence (utility bills, driver's license, etc.). This should clear things up without going through the hassle of amending, which could potentially create more confusion.

After going through almost the exact same situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much stress. I also got that dreaded CP2501 notice for not reporting a home sale, even though I qualified for the exclusion. What taxr.ai does is analyze your tax documents and IRS notices, then creates the exact response letter you need. I uploaded my CP2501, my 1099-S from the title company, and proof of how long I'd owned my home, and it generated a perfect response letter with all the right tax code citations explaining why I qualified for the exclusion. The IRS accepted my explanation without any further questions! It was such a relief not having to figure out all the technical tax language myself. Definitely worth checking out if you're stressed about responding correctly.

I was super skeptical about taxr.ai when I first saw it mentioned here, but I was desperate after getting a similar IRS notice about unreported income. I decided to give it a try, and honestly, I'm blown away by how well it worked. The step-by-step guidance helped me understand exactly what I was dealing with. After uploading my documents, it created a response letter that clearly explained my situation with references to the exact tax codes that applied to my case. What really impressed me was how it caught a partial exclusion rule that applied to my situation that I had no idea about. I sent in the response they helped me create about 6 weeks ago, and just got confirmation from the IRS that my case is closed with no additional tax due. Definitely saved me from paying a CPA several hundred dollars for the same help!

If you're still getting nowhere with the IRS after sending your response, you might want to try Claimyr (https://claimyr.com). I was in a similar situation last year with a CP2501 notice for a home sale, and after sending my response, I heard nothing for months and couldn't get through on the IRS phone lines. Claimyr somehow got me connected to an actual IRS agent in about 15 minutes when I had been trying for weeks! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to pull up my case file and confirm they had received my documentation but it was sitting in a backlog. She expedited the review and I got my resolution letter two weeks later. It's ridiculous that we need services like this, but the IRS phone system is absolutely broken and sometimes you just need to talk to a human being to get things resolved.

I have to eat my words about Claimyr. After my skeptical comment yesterday, I decided to try it this morning because I was desperate to talk to someone at the IRS about my penalty notice. Honestly, I'm shocked at how well it worked. After months of trying to get through the normal way, Claimyr had me talking to an actual IRS representative in about 22 minutes. The agent was able to put a hold on my collection notice while they review the documentation I sent in weeks ago. The system works exactly as described - it called me when it had an agent on the line. Saved me from what would have been another day of frustration and hold music. Sometimes being proven wrong is a good thing!

Don't forget that the title company might have sent the 1099-S to the IRS in error. In many cases when selling your primary residence, you can certify that you qualify for the exclusion and the closing agent isn't supposed to file the 1099-S at all. When I sold my house last year, I signed a certification form stating I met all the requirements for the exclusion. The title company didn't file a 1099-S, and I didn't have to report the sale on my taxes. Might be worth checking if this happened in your case - sometimes title companies automatically file these forms without asking if you qualify for the exclusion. For future reference, make sure you specifically ask about this certification at closing if you're selling your primary residence. It can save you from exactly this headache!

Has anyone else had an issue where their tax software didn't generate the right forms? I used TaxAct this year and had a similar problem with some investment sales not showing up on the right forms even though I entered everything correctly.

I went through this exact same situation two years ago and can confirm that responding to the CP2501 notice with proper documentation is the right approach. Don't panic - this is actually a very common issue that gets resolved easily once you provide the right information. Here's what worked for me: I wrote a clear letter explaining that the property was my primary residence for over 2 years, included copies of my purchase documents showing the original cost basis, the 1099-S form, and proof of residence (utility bills, voter registration, etc.). I also calculated the exact gain and showed it was well under the $250k/$500k exclusion limit. The key is being thorough in your documentation. Include everything that proves: 1) When you bought the house, 2) When you sold it, 3) That it was your primary residence for at least 2 of the last 5 years, and 4) Your actual capital gain calculation. I mailed everything certified mail and got a letter back about 8 weeks later confirming no additional tax was due. The IRS just needed to see that I was aware of the sale and properly claiming the exclusion. Don't amend your return unless you absolutely have to - responding to the notice directly is much cleaner and faster.