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Section 121 exclusion is incorrect

Dima

I am reporting a house sale for $1,150,000 with cost basis $800,960 and $50k expenses. There is also $47,953 depreciation to recapture.

The From 4797 shows "Section 121 exclusion": $304,000.

This seems to be incorrect: I expect this value to be total gain minus depreciation recapture = $284,040

Am I missing something? If so, where does the $304,000 number come from?

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JMSSGV

The total gain is $346,993 ($1,150,000 - [$800,960 - [$50,000 + $47,953]) So where is $284,040 coming from? Was something entered differently in the software? Or am I misinterpreting your figures? So the amount of gain that can be excluded is $299,040 ($346,993-$47,953.) I'm not sure where the $304K came from. Maybe look at the printed version of the form to see the calculations.

Dima

Yeah, I think, I messed up the numbers (been playing around with different inputs trying to figure out what it is doing), but it doesn't really affect the essence of the the question.
Here is a more accurate representation of what I entered:

Original Cost basis: $800,960
Original Cost of land (included in basis): $235,800
Sales Price: $1,150,000
Sales expenses: $50,000
FMV or asset (not including land): $650,000
FMV of land: $500,000

Prior year depreciation: $31,683
2024 depreciation: $16,270
Total depreciation: $47,953

So, I calculate the total gain as 1,150,000 - 50,000 - 800,960 + 47,953 = $346,993
And the exclusion amount as $346,993 - $47,953 = $299,040

But what I see in the printed form 4797 does not match this. It shows:

Gain from land: $500,000 - $257,539 = $242,461
Gain from house: $650,000 - $593,421 + $47,953 = $104,532

So far so good: 242,461 + 104,532 = 346,993 - it matches my total number, just split it between the house and the land.

BUT NOW, on the next line, it just says: SECTION 121 EXCL: -304,000 🤷‍♂️
I have no idea where this number comes from. It doesn't seem to change at all if I vary expenses or "reallocate" the FMV between house and land, or change the depreciation amount … Looks like it's just hardcoded there :/

MatthewD

Hello Dima,

This would be an important issue to contact Support about. Also, a support agent will be able to look at the details of your account closely.

Keep in mind that you may be subject to AMT and the Form 6251 may be part of your return. You must enter the AMT Depreciation on the Rental Asset depreciation page. Do not leave that box blank or enter $0. Work with Support to resolve the issue.