Section 121 of the IRS code allows exclusion of capital gains related to the sale of a personal residence for up to $250K for single and $500k for married joint filers. For homes used as a business rental, any depreciation claimed after May 6,1997 is not eligible for exclusion and the accumulated depreciation claimed while the property was used for rental must still be recognized in the final calculation of gain or loss. TurboTax will handle this sale for you and will walk you through the questions necessary to recognize the accumulated depreciation taken in previous years.
You are further limited by having to recognize periods of disqualified use of the property (used as a rental and not personal use) after December 31, 2008. This period of time from 2009 to 2012 would not be eligible for exclusion either. Also, if you took any form of accelerated depreciation, there could be "recapture" of the amount claimed as depreciation, calculated between the difference of straight line and the accelerated amount under Section 1250, which would be taxed at 25% and not the lower capital gains rates (0%, 15%, 20%). It's important to note that, had you originally bought and used the home as residence, periods of non-qualified use after that would not have counted against you so the exact facts pertaining to ownership and use greatly matter.
After accounting for any periods of disqualified use or depreciation recapture, the remainder of the gain, if any, can be partially excluded under Section 121 and you must still meet the ownership and use tests to exclude that portion (you must have owned the home and used it as your main home for an aggregate of at least two years out of the five-year period ending on the date of sale).
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