I sold my 2nd home and received a 1099s. The house sold for $168,000 and was purchased 14 years prior for $137,000. We had realtor fees of 8,400. We are going to amend our taxes with this 1099s and include the $40,000 of home improvements. Do you think this will balance out or will I have to still pay taxes on the equity received?

Your cost basis in the home equals the amount you paid when you bought it ($137K) plus the cost of capital improvements you made to the house while you owned it. Capital improvements are things that are improvements to the home - things like room additions, upgraded appliances, adding a deck, etc. It does NOT include maintenance items such as painting or furnace repair. If those costs were $40K, then your cost basis is $137K + $40K = $177K, which is more than you received when you sold the hose. Therefore the tax on the sale will be $0. However. since you received a 1099-S you must report the sale on Schedule D and form 8949. (showing $0 gain). See IRS Pub 523 for details: https://www.irs.gov/publications/p523/ar02.html#en_US_2016_publink100011875