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11167: 1040 - Section 121 Exclusion Requirements


1040 Individual

How do I enter the Section 121 Exclusion for a sale of a home?

 

The sale of a home is reported on the HOME screen in Drake Tax. If the taxpayer qualifies to exclude the gain on the sale of their home under Section 121, complete the Calculate Section 121 Exclusion area at the bottom left of the screen. Important: You must determine if the taxpayer qualifies for an exclusion prior to making entries. See Publication 523, Selling Your Home for details.

Note:

  • A taxpayer who does not meet the two-year ownership and residence tests (out of the last five years) may still qualify for a reduced maximum exclusion under some circumstances.
  • Some taxpayers (such as military personnel or those on government orders) may have different guidelines; see Tax Topic 701

If you need to provide additional information regarding the exclusion calculation, you can use the SCH screen, selection X, to create an attachment for the e-filed return. 

The calculation results are shown on Wks 2119, which displays the three worksheets described in Publication 523. Taxpayers can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of their home if they pass the Eligibility test in Publication 523.

The software calculates the exclusion based on the number of days the home was owned and used as the main residence and calculates a reduced maximum exclusion if the ownership and use falls below two years. Some taxpayer qualifications that are necessary for the reduced exclusion (described in Publication 523) are not considered in the calculation. That is why you must confirm the results before making any entries on the HOME screen. 

If an exclusion is calculated, but the taxpayer does not qualify, you can check the HOME screen option Does not qualify for exclusion (Carry gain to Form 8949/Schedule D) to report the gain instead.

You can choose to force exclusion or loss adjustment to be printed on Form 8949/Schedule D by using the checkbox on the HOME screen in the miscellaneous section located at the top right of the screen. This will produce a Schedule D/Form 8949 in view mode even when it is not required to be produced.
In some situations, it may be necessary to force the taxable gain to show on Form 4797 by checking the option Carry taxable gain to 4797 on the HOME screen; see the F1 field help for details. 


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