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Client sold home in California and sold it before owning it for 2 years

bill6
Level 3

My client sold his home in California at a loss. His company reimbursed him for the loss and included it in his W2 income for 2020. He owned the house for less than 2 years so he is not eligible for home sale gain exclusion. Does the reimbursement create a gain at Fed or State level? My inclination is no as he is already being taxed on the reimbursement when it was included in his W2 income. 

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9 Replies 9
IRonMaN
Level 15

He picked up W-2 income for what he was short so there is no gain to report on the sale.

I'm keeping this job. But I am selling surplus anvils on the side. If you are interested please call 867-5309
bill6
Level 3

Thanks IronMan . Is your reply contradictory to TaxGuyBill? 

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TaxGuyBill
Level 14

Any bonus that his employer pays him does NOT change the calculation of gain/loss of the house.

bill6
Level 3

Thanks  TaxGuyBill. Is your reply contradictory to IronMan? 

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IRonMaN
Level 15

Same answer.  He still has a loss on the sale and he has additional income reported on his W-2.

I'm keeping this job. But I am selling surplus anvils on the side. If you are interested please call 867-5309
bill6
Level 3

Thanks IronMan and TaxGuyBill. Are your replies contradictory to one another? 

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Just-Lisa-Now-
Level 15
Level 15
If there is a loss, they dont need the 121 exclusion.

If the employer compensated them on their W2, all income has been accounted for.

What is your question again?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
qbteachmt
Level 15

Nothing is contradictory. They don't Relate the way you are thinking they relate.

The Nice Employer justified giving the person a Bonus, likely because the job had something to do with the need to sell the house no matter the market.

That's the only way they relate.

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"Level Up" is a gaming function, not a real life function.
dkh
Level 11

You've said your client sold the home for a loss therefore there you don't need to be concerned about the home sale gain exclusion.   The loss is not deductible.  

The "reimbursement" is W2 income.  As @qbteachmt  pointed out - it's nothing more than an employer being kind with a bonus.     Enter the W2 as you would any other W2.