Help...Got an IRS Notice for Not Reporting Home Sale

Hi people…

I’m reaching out for some advice regarding a notice I received from the IRS. We bought our house in 2017 and sold it in 2022 for $170k more than what we paid. Since it was our main residence, I believed that the gain wouldn’t be taxable and that I didn’t need to report it on my tax return.

However, I just got a CP2501 notice stating that I failed to report the sale as compensation. It looks like they received a 1099 from the closing law firm, and I have the same 1099. Now I need to respond to the notice and state whether I agree with this change. If I do, they will send me a notice of the additional tax I owe.

Am I correct in thinking I shouldn’t owe taxes on this sale? If so, how do I prove this to the IRS? The instructions in the notice are pretty vague, and when I called them, the agent couldn’t give me a definitive answer and suggested I consult a CPA.

Has anyone dealt with a similar situation? Any guidance on how to handle this would be greatly appreciated! Thanks :blush: :blush:

You should disclose the transaction and provide proof that you qualify to have the gain excluded, regardless of whether you owe taxes or not. This is particularly valid if the IRS and you both got a 1099-S detailing the sale’s revenues. Unless you tell the IRS, it is impossible for them to determine whether this was a personal dwelling, what your basis was, or whether you qualified for the capital gain exception.