:@Hclegg Agreeing with @Critter-3 for an excellent point, I would also like to add the following:
1. If you plan to sell / dispose off the property ( condo ? ), note that to avail yourself of gain exclusion ( $250,000 or single or $500,000 for joint filers ) you must satisfy (a) at least two years of ownership and (b) a total of 760 full days of use as main home -- for each filer -- working backwards from the sale date
2. Because it is a rented property, your basis in the property will remain as the sum of acquisition cost and cost of any improvements till the date of sale. Your adjusted basis is Sales proceeds ( Sales price less sales expenses including transfer taxes etc. ) LESS accumulated depreciation allowed. Thus your gain is Sales proceeds LESS adjusted basis. That part of the gain that is caused by the accumulated depreciation i.e. all gain upto accumulated gain is treated ordinary gain and taxed at your marginal rate and the rest of the gain is capital gain and is eligible for exclusion if and only if you satisfy the conditions in item (1 ) above.
3, Give the above items it would be advisable to consult a tax professional before you sell so that you can minimize your tax hit.
4. Till the sale time , your rental income is reported on schedule -E and TurboTax would be quite capable of doing all this for you. You just need to keep good records ( all of these items are outlined in Pub 527 as mentioned above )
