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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 Comments 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.


Slava Ukraini!
TaxGuyBill
Level 15

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

bill6
Level 3

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

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bill6
Level 3

Thanks IronMan . Is your reply contradictory to TaxGuyBill? 

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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.


Slava Ukraini!
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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dkh
Level 15

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.