Q. Does TurboTax do a calculation like that?
A. Yes.
Q. I have just seen where it asks if it was primary residence for two of the last five years. I thought if that was true than it was eligible for the entire $250,000?
A. Yes. But, if there was non qualified use, the amount of the gain eligible for the $250,000 maximum exclusion is reduce by the fraction described in the other answers.
Q. I am just wondering how that would happen in TurboTax (TT)?
A. TT handles this very well (I just tested it, again). It asks you if you qualify for the exclusion (the 2 year rule), then it asks if you had any non-qualified use. If you answer yes, it asks you to enter the number of days (not years or months) of non-qualified use. Then it asks for the depreciation taken (or allowed). It then calculates the excludable amount, the taxable portion, and the depreciation recapture on Schedule D.
Enter the sale in the home sale part of TT (Less Common Income - Sale of Home).
