Capital gains/Rental Property

[MrMrsLandlords]

I purchased a home as a primary residence and lived in it 2 of the last 5 years. Roughly 2 years ago my husband and I decided to turn it into a rental and transferred the title into an LLC. We (the LLC) sold the house last year. Since we lived in it for 2 of 5 years, we should be exempt from paying capital gains on the percentage of time we were living there. There is no prompt on TurboTax business to input this information. How do we indicate this to avoid paying capital gains on the full amount? 

[Carl]

If the LLC is the titled owner of the property, then there's no way the titled "owner" at the time of the sale lived in the property for two of the last 5 years.

[MrMrsLandlords]

Thank you very much for your speedy and helpful response! Is the lesson here that we should have moved it back into our names before selling?

[Carl]

Actually, you should have never transferred ownership in the first place. This is just my personal opinion, as I don't know the particulars of why you transferred ownership in the first place, and it's probably none of my business anyway.

[JosephS1]

There are several trains of thought here but I do believe you have not sacrificed your option to at least utilize some of the exclusion on the sale of a personal residence.

Your statement did say you have used it for 2 of the previous 5 years but the ownership was transferred to an LLC  2 years ago.  Based on the above facts there are 2 possibilities at play here:

1. Have you filed a multi-member LLC return during the period of ownership titled in the LLC's name?  If you have you may want to consult an Attorney on what are called "attribution rules".  In some cases a husband and wife can be considered a single entity for tax purposes and it would be as if you owned the property personally during the LLC time and the LLC ownership could, under such circumstances, be disregarded.
2. There is also the possibility, which I personally agree with, of a "partial" exclusion of the capital gain on the sale of the property.  Since it was your residence for 2 of the previous 5 years, it is not unlikely that you still qualify for a 40% (2/5) exclusion.  I have listed a link to Jones Property Law which discusses a situation similar to yours but in either case, I would consider consulting an Attorney on this.

Jones Property Law

Sale of Residence per IRS

@MrMrsLandlords