No, you do not fill out both sections. Below are the instructions to handle a rental that was a home during the five year period before the sale and the sale itself will only be reported in Sale of Home section.
Do not list the improvement as an asset in the rental activity. An asset that is placed in service and removed the same year is not allowed to be used for depreciation. This will be added to the cost basis when you enter the Sale of Home. Be prepared with the number of days it was rented in total.
A portion of the gain will be taxable due to rental use days and depreciation expense.
Let's go step by step to enter your sale.
- In the rental asset(s) say it was 'This item was sold retired, etc...', enter the date you sold it (capture the prior and current depreciation)
- Say 'Yes' to 'Special Handling Required'
- Finish and then go to the next step to report your sale.
- Scroll to Less Common Income > Select Sale of Home (revisit or update)
- Continue to indicate you sold your home > Edit or add your home address and ownership > Continue
- Enter the Sales date, Selling Price and Sales Expenses > Continue
- Enter the Date Acquired and the Cost of the Home (includes any capital improvements for the period of ownership (do not reduce for depreciation expense) > Continue
- Continue past the 'Less than two years' screen > Yes the home was used for anything else > Enter number of days used for rental purposes
- Continue > Select No another home was sold after _____ date > Select ownership if married > Continue
- Select Yes for Depreciation After May 6, 1997 for both of you if married > Continue > Enter the depreciation claimed after May 6, 1997 (same amount for AMT)
- Continue to answer the remaining questions and you will see your 'Tax Free' and 'Taxable' gain.
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