We sold our house in the US last year -- where to declare?

We moved to the UK in 2009, which included selling our house (value = less than $200,000) in the US in August of last year.

What are the tax implications of this? Which form do I need to complete to factor this into my taxes for the year -- if, in fact, I do have to declare it somewhere.

http://www.irs.gov/taxtopics/tc701.html

If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Publication 523, Selling Your Home, provides rules and worksheets.

In general, you are eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its sale. Refer to Publication 523 for the complete eligibility requirements as well as exceptions to the two year rule.

Report the sale of your main home only if you have a gain that is not excluded from your income. In most cases, if you have a gain that is not excluded, you must report it on Form 1040, Schedule D (PDF), Capital Gains and Losses.

From the Schedule D Instructions: "If you sold or exchanged your main home, do not report it on your tax return unless you cannot exclude all of your gain from income. Any gain you cannot exclude is taxable. Generally, if you meet the two following tests, you can exclude up to $250,000 of gain. If both you and your spouse meet these tests and you file a joint return, you can exclude up to $500,000 of gain (but only one spouse needs to meet the ownership requirement in Test 1)."

The double negatives in the first paragraph make my head spin. Ugh. Can you tell me in layman's terms what 'Any gain you cannot exclude is taxable' means? Are gains defined as 'profits' (i.e. difference between purchase price and sale price) or just 'funds from the sale of the home' (i.e. the money now sitting in our US bank account)?

Don't over complicate it.

Gain is more or less what you sold if for minus what you have spent on it.  If you sold it for $500k and bought it for $200k, you have a $300k gain.  There are a couple of tweaks to this, but let's keep it simple.

If you/wife owned and lived in the house for 2 out of the last 5 years, you can each exempt $250k of gain. 

So using the example of $300k of gain above, that is $150k allocated to each of you.  If you can exempt up to $250k, then you essentially have no taxable gain.

You have $300k in actual gain but no taxable gain.  If you have no taxable gain, you don't even have to report it.

Looking back to the IRS language.  If you sold your main home, do not report it on your return unless you cannot exclude all of your gain (i.e. via the $250k exemption).  Said another way, report it if you have taxable gain (after you have considered the $250k exemption).

OK, that's clearer. We bought the house for $140,000 and sold it after 5 years for $170,000, so am I right to think that I'm well under the exemption limit and I can just let the whole matter rest?

As long as you met the 2 of 5 requirements, you are well under.

OK, thanks! I genuinely don't understand how anyone can even begin to understand this stuff. The entire process is so arcane and jargon-laden and just generally tangled and headache-inducing, it all just starts to seem like a giant moneyspinner for H&R Block -- "Feel free to try to understand this stuff on your own, or just pay us to understand it so you don't have to."