We broke ground on our retirement home in July 2014 and took possession in January 2015. Since I did not plan to retire for several years, we opted to cover the cost of the house by renting it as a vacation rental through VRBO. We rented in through VRBO from May 2015 until October 2018. In preparation for renting the property we completely outfitted the house with everything someone would need to while on vacation. It was our second home from November 2018 until the end of November 2020. We moved into the home full time and classified it as our primary residence on December 1, 2020. We sold the house in April 2024. On this basis we believe we meet the 2 of 5-year rule for classification of the house as our primary residence for tax purposes. As I was looking through IRS Pub 523, I came across a section that addressed rental use of a home. If I understand that section correctly, it appears that we have to "repay" the depreciation we claimed while we rented the property through VRBO (the total depreciation is about $30K). Another item I recall reading in Pub 523 briefly mentioned something about items sold with the home. We spent about $11,300 to outfit the house in 2015. Do we have to include those costs in our calculation for capital gains? At this point we are unclear of we how to handle the depreciation and costs to outfit the house, as we do we have to complete the worksheets in Pub 523. We can provide more financial information related to the building cost and sales price if needed. Looking forward to your thoughts and opinion on how to move forward with this issue.
