CP2501 resolution process

I had by mistake not included sale of house in 2012 returns. IRS sent us letter CP2501 to which we replied 3 weeks back that we do not owe capital gain taxes as we lived in the house for more than 15 years prior to sale hence exempted, also gave them house purchase and selling statements. I called them again today they said they got our letter and it is presented to examiner and he/she has to respond in 30 days. Is it a normal process or we looking for trouble from IRS on this, are we being audited?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 2014-08-20 20:50, Anon wrote:

Since no one else has replied yet, I'll take a shot.
I haven't tried your approach of sending in purchasing and selling statements, so I don't know if that will work. My guess is it won't.
Basically, you are asking IRS to take your source documents and prepare part of your return for you, generally they won't do that. You should be sending in some revised tax forms or schedules with your response, that is what the IRS understands best.
On to a few other items: simply living in the house for 15 prior years does not automatically exempt you from gains. You have to meet a 2-out-of-5 previous years ownership and residency test, and you only get to exclude up to a maximum amount, not necessarily all your gain. For a married filing joint taxpayer, the exclusion is up to $500K of gain.
Also, if any part of the house was ever depreciated for business or rental use, that adds some more complexity.
In many situations, sale of a personal residence is not reported on a tax return, so I'm assuming that a 1099-S form was issued for the sale proceeds, and that is what the IRS picked up. If that is the case, then usually you do have to somehow show the 1099-S amount on your return, and then show that it is partly or totally not taxable due to Section 121 exclusion on sale of personal residence.
In summary, you should show the IRS a worksheet, Schedule D, and/or Form 8849 to show that your gain was less than the excludable amount. A tax professional can help you with this.
-Mark B.
--

Mark Bole, EA
http://markboletax.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
"Anon" wrote in message I had by mistake not included sale of house in 2012 returns. IRS sent us letter CP2501 to which we replied 3 weeks back that we do not owe capital gain taxes as we lived in the house for more than 15 years prior to sale hence exempted, also gave them house purchase and selling statements. I called them again today they said they got our letter and it is presented to examiner and he/she has to respond in 30 days. Is it a normal process or we looking for trouble from IRS on this, are we being audited? ============[Question not answered by the other reply:] Yes, you have been subjected to a correspondence audit since the IRS has asked for specific information to support your exclusion.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.