You will qualify for a partial exclusion, provided you sell the property BEFORE Aug 1, 2020. For each month *BEFORE* that date, you will qualify for a 1/24th tax exclusion on your gain. But I can't stress the importance of reporting the sale correctly in TurboTax, so the program will ask you if you lived in the house as your primary residence for a period of time in the last **TEN** years counting back from your closing date on when you sell it. If you don't do this right, then the program will only ask about your last FIVE years.
The below instructions are your guidance, and if you follow them to the letter, you will NOT be asked about the last TEN years you owned it. So I provide them only for guidance to "get you started" on the reporting process in the program. I have also modified the below guidance to be more in line with your specific needs.
Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" (10 years for AD/MIL) capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in 2017". Select it. After you select the "I sold or otherwise disposed of this property in 2017" you continue working it through "as if" you still own it.
When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. If you had no rental income for the year, you can't leave that section blank. You *MUST* enter a number, even if that number is a zero. If you had no rental expenses, then you don't even need to work that section through and it's not in issue to just leave it blank.
Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
ADDENDUM FOR KAMOANUI: You'll first be asked if you lived in the home in the last five years. You will tell the truth and answer this question NO for both of you and press on. Then when you get to the "REASON FOR SALE" screen, select *OTHER REASONS* and continue. Then on the "OTHER REASONS FOR SALE" screen, select "military" and continue. Then just follow the screens from that point on and for each month it was your primary residence in the last TEN years you owned it prior to the sale, 1/24th of your gain will be excluded from taxation.
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically when working through an asset you select the option for "I stopped using this asset in 2017" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
