You can enter the sale as a home sale, instead of in the rental section.
In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)
- Wages & Income
Scroll down to:
-Less Common Income
- Sale of Home
When asked if you meet the 24 month rule, answer yes, since you know you meet the military exception. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. This is explained at the Learn More link on that page. Later, the interview will ask if you claimed any depreciation. Enter the total amount you claimed while it was rented out. TurboTax will treat that part (depreciation recapture) as taxable.
Using an example: you bought a house for $100,000, later sold it for $150,000 and took $15,000 depreciation. $50,000 of the $65,000 capital gain will be tax free due to the home sale exclusion. $15,000 will be taxable, as a section 1250 gain (taxed at ordinary income rates, but not more than 25%).
