Does the Sale of second home converted rental property qualify for partial exclusion of gain if the conversion was due to work related move

[Mag Jen]

Updated:

Thank you @AmeliesUncle  for leaving this message, finally I could clear some confusion.

Your message reminds me to go searching for more details and I believed I have to enter 100%.

Thank you.

@AmeliesUncle 

"If you are entering 100%, then you may be misreading the "Nonqualified Use" page where it asks you for the number of days of ownership and the number of days of "Nonqualified Use".  In your case, because the rental was AFTER it was your main home, there is NOT any Nonqualified Use."

Please advise what I should have entered?

I owned a house 22 years, live in 12 years, rented out 6 years, move back to live in 2 years, and then rented out for 2 years and sold the house.  Should I enter 100% or 36.4% (=8/22) for business portion only?

Thank You.

[AmeliesUncle]

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@Mag Jen wrote:

Please advise what I should have entered?

I owned a house 22 years, live in 12 years, rented out 6 years, move back to live in 2 years, and then rented out for 2 years and sold the house.  Should I enter 100% or 36.4% (=8/22) for business portion only?

Thank You.

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What section of the program are you entering this in?  In most cases, you should be reporting this in the rental section, while you go through the "assets" for depreciation to indicate they are sold (based on what you have said, you can say "NO" to the "Special Handling" screen).

You can still enter 100% of the sale.  But in your case, you DO have "Nonqualified Use" which will prorate your exclusion.  After you say it was your Main Home, it should walk you through things, but read the screens VERY carefully because it can be quite confusing.  In your case, you have about 6 years of "Nonqualified Use", so about 6/22nds (27%) of your gain will NOT be excludable by the $250,000/$500,000 Main Home exclusion (plus the depreciation is NOT excludible either, so your taxable gain will be higher).

You may also consider a good tax professional for this year.

[al_li_2020]

Thank you very much!

I think you were talking about the page which asked the following:

"Did you use this home for anything other than your primary home? Let us know if there was any time after 2008 where you used your home for reasons other than as your primary home (followed by a link explaining what Nonqualified Use of a Main Home is).

Then a Note: If you used your home for reasons other than as your primary residence after it was no longer your primary home, select "No".

It make a huge difference in terms of the Federal tax I owe by selecting "No" instead of "Yes". 

Thank you very much for helping me find this mistake!

[AmeliesUncle]

Correct.  For purposes of that page/question (Nonqualified Use), any time AFTER the LAST time it was you Main Home does NOT count.

[Mag Jen]

@AmeliesUncle 

Yes, I entered the sale under the rental section.

Wages & Income -> Rental Properties & Royalties ….-> Sold

Special Handling: answer "NO"

Sales Information

Enter the following information about the sale of this asset.  You must divide, or allocate the sales price and expenses between the land and the asset (improvement) based on their fair market values.

Asset Sales Price (Business Portion Only) _________

Asset Sales Expenses (Business Portion Only) ________

Land Sales Price (Business Portion Only) ___________

Land Sales Expenses (Business Portion Only)___________

So, instead of answering 100% sales price, I should have entered 27%?

Thanks.

[AmeliesUncle]

No, enter 100%.

That section ("business portion only") is just set up for general "assets".  For real estate, you can enter everything as 100%.