Our plan is to sell the property within three years of when we converted it to a rental. Since we will have lived in it for two of the last five years at that point we will take the capital gains exclusion. My problem is that TurboTax does not give me the option of entering the lower FMV. It only asks me for the Purchase price and the date that we purchased the property - which was more than ten years ago. The software is also very unclear about entering the expenses. I entered the entire amount of the mortgage interest and the insurance because the software claimed it was going to allocate between the time that the property was a rental and the time that we occupied it. Instead, it put the entire amounts as an operating expense. This is the first year where I have had problems using Turbo Tax. It looks like I will have to find a better product.
