Tax Considerations for April

April 2024

April welcomes new life every year. Spring is a season of optimism and growth. The tax season ends, and the home selling season begins.

Tax Deadlines

The deadline for filing a federal income tax return for an individual, Form 1040, is generally April 15, 2024. I.R.C. § 6072.

The deadline for paying federal income tax is also April 15, 2024. I.R.C. § 6151(a).

If a filing extension is needed, then an automatic six month extension is requested by filing Form 4868 by April 15, 2024. I.R.C. § 6081. Extension for the payment of income tax without interest, however, is not available. I.R.C. § 6151(a).

Spring brings home selling

In addition to rain and the growing season, spring also brings the home selling season. Although gain is realized on the sale of real property equal to the amount realized over adjusted basis and such amount is generally recognized, an exclusion exists under I.R.C. § 121 with respect to a principal residence. I.R.C. § 61(a)(3); I.R.C. §§ 1001(a) & (c).

This exclusion was significantly modified in 1997 to replace a prior rule that previously required rollover of proceeds for nonrecognition treatment.

The general rule of I.R.C. § 121(a) provides that gross income does not include gain from the sale of property if, during the five year period ending on the date of sale, the property has been owned and used as a principal residence for two or more years.

This favorable rule, however, is subject to limitations. Notably, I.R.C. § 121(b)(2) provides that the amount of excluded gain is capped at $250,000 ($500,000 for spouses).

EXAMPLE: A and B are married. In 2021, they purchase a home for $700,000, which is then used by them as a principal residence. In 2024, A and B sell the home for $1.4 million. The gain realized is $700,000 (1,400,000 - 700,000 = 700,000). I.R.C. § 1001(a). Gross income includes $200,000 from the sale, and excludes $500,000. I.R.C. § 61(a)(3); I.R.C. §§ 121(a) & (b)(2).

Reporting is made on Form 1040, Schedule D, and Form 8949, which are generally due on April 15 of the following year. Publication 523 provides further guidance.

Matthew S. Beard, P.C.

3838 Oak Lawn, Suite 1220

Dallas, TX 75219

(214) 434-1813