Bug? TT2025 Desktop Premier trying to deduct entire cap loss on sale of rental property, not creating 8949 or sch D for the sale

[dward50]

Ok, using TT2025 Premier Desktop.  Trying to include the sale of a rental property in 2025.  It was held long term.  Cost of acquisition was 336,300 (of which 30,000 was land value).  Sold in Dec 2025 for 306,100 which included $95,992.84 in sales costs, buyer credits, cap improvement (it was an OpenDoor sale).  Depreciation to be recaptured including 2025 totals $87,400.  Property was a single family residential rental (not my main home).

TT is not generating a Sch D or form 8949 for the sale of the rental property.  It is showing the sale only on form 4797 in PART I, not in part II.  It is then deducting the entire loss of -51,443 (the loss plus 2025 Sch E expenses and depreciation) as though it was 100% deductible in 2025 instead of being subject to a cap of $3,000 to offset ordinary income with balance carrying forward.  I do have less than $100 in cap gains from stock sales it could offset, but I can't figure out why it's using the entire -51,443 for 2025.  I think this is bug in the calculation tree.

[user17710097333]

TT cannot accurately report depreciation recapture from both current rental depreciation and past home office depreciation on the sale of a section 121 primary residence.

Details:  We purchased home in 2018.  We lived there as primary residence until January 2024.  For each year lived there (2018-2023), we took itemized home office deductions, including depreciation on the portion of the house used as a home office, reported on Schedule C and line 42 of form 8829.  On 1/31/2024,  moved to a different state and put house into service as rental.  Rented out entire house until 7/17/2025.  Sold house on 7/17/2025.  House qualifies for section 121 exclusion with the exception of the depreciation recapture from two sources:  1) home office depreciation on form 8829 line 42 from 2018-2023 and 2) rental depreciation on Schedule E in 2024 and 2025.

Regardless of whether I report the 2025 home sale in Schedule E *or* Sale of Main Home, TT accurately links the rental to the Home Sale Worksheet.  However, TT only reports the depreciation from the rental.  Even if I manually override the total depreciation taken on (or eligible) for the home in the Sale of Main Home section in order to enter the amount that reflects *both* the home office depreciation and the rental depreciation, the software automatically corrects it and defaults back to the combined 2024 and 2025 Schedule E rental depreciation only.

The end result is that I cannot get Form 4797 to accurately reflect the total depreciation amount.  It underreports the amount by excluding the depreciation total from the home office depreciation and only recognizing the rental depreciation.

Please help.

[DianeW777]

Home Sale with Rental and Home Office Depreciation:

In your situation the sale should be reported as a sale of your home. This means that in the rental activity you must be sure to select in Property Info it was sold and when prompted select Special Handling (this stops TurboTax from looking for sale information in the rental). 

For both the rental and the home office you can also select that it was converted to personal use. The sale should not be reported in the rental activity or the home office. The information you need to collect for the sale of you home is noted below.

When you enter the home sale in TurboTax it will ask for a couple of items that are needed to report the sale correctly.  

1. The total depreciation expense that was allowed during the period it was available for rent, include the total depreciation used as a home office as well.  Check your prior tax returns for this figure from both the rental and the home office.
2. The total number of days the property was available for rent during the ownership period. 

Results:

1. The amount of depreciation that was allowed will be completely taxable up to the amount of gain received on the sale.
2. The remaining gain if any, will be split between taxable and amount eligible for exclusion by using the following formula.
   • The total days available for rent will be divided by the total days owned to determine the portion of the remaining amount of gain that is taxable for the rental period
   • The balance will be eligible for the home sale exclusion
3. TurboTax will do all the calculations based on your entry

Steps to enter the Sale of Home in TurboTax: Wages and Income > Less Common Income > Sale of Home

1. On the screen Primary use of home select 'Yes'
2. Enter the number of days used as a rental (nonqualified use)
3. Continue to Depreciation after May 6, 1997 > Enter the total depreciation for rental and home office in both boxes

This will allow TurboTax to handle the sale with the correct amount of taxable gain and excluded home sale gain. 

@user17710097333