Thank you for the reference. Although I can’t remember for sure, I think that situation did apply to me. Bought the home in 1985, married in 1990, sold old home in 1992 and bought new home in both our names that year as well.I believe that statement was required with the tax return for the year of sale only in a situation with a couple filing jointly where either one spouse owned the old home individually and the new home was owned jointly, or when the old home was owned jointly and the new home owned individually. By both spouses signing the statement, they agreed that the deferred gain would cause a basis reduction in the new home as if both homes were owned jointly.... the old standard when you originally deferred the gain was to include a statement in your tax return that you agree to report this deferred gain in the future. After someone on BH alerted me to this requirement, I indeed found something like that in my 1992 tax return after we sold a house.The article linked above explains the law change but does not really answer the OP's question, which is what happened to the gain deferred from a home that was sold prior to 1997? For the OP and many similar taxpayers, the likely answer is that the deferred gains essentially vanished.
Under the old law, a gain on a principal residence sale could be postponed if a new home was bought withing 2 years for equal or greater value. For homes sold after May 6, 1997, the gain could no longer be postponed but was replaced by the current exclusion of $250K/$500k. A gain postponed under the old law was reported on the tax return for the year of sale on Form 2119 and the deferred gain reduced the adjusted basis of the new home, also reported on Form 2119. When the law changed, Form 2119 was discontinued.
So when a home was sold many years after the law change, any pre-1997 deferred gain was very often "forgotten" when calculating gain on the current home. Instead, purchase price was incorrectly used as the starting basis. The IRS had no records to refute the calculation. The deferred gain just disappeared.
In some cases, some or all of the forgotten reduction in basis may have been absorbed by the principal residence exclusion. In any event, assuming the forgetfulness was not intentional, I don't think taxpayers should feel too guilty about the oversight.
This required statement is explained in the 1992 instructions to Form 2119 which can still be accessed online. Not sure if the situation applied in your case, but if not, no harm done by attaching a statement that was not required.
Statistics: Posted by SuzBanyan — Fri Sep 06, 2024 8:31 pm