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How do I determine the basis of a rental property I used as personal residence, rented, lived in again, rented, and then sold?

The FMV at the "2nd conversion" is lower than the FMV at the 1st conversion which is lower than the original cost.
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1 Reply
DianeW
Expert Alumni

How do I determine the basis of a rental property I used as personal residence, rented, lived in again, rented, and then sold?

At the point of sale you should include the difference between the FMV you used for rental purposes and the actual cost of the rental to reflect your true purchase price when determining gain or loss on the rental.

In most cases, the sale of Rental Property is sold in the rental section and you sell the 'asset' of the house.  However, if the property was originally a personal-use property and it converted to a rental property when the Fair Market Value was less then the Cost Basis (usually the purchase price plus cost of improvements before it was a rental), it is reported in the "Sale of Business Property" section.

Go into the "asset" for the property in the Rental section, and indicate that you sold it.  When you get to the screen that asks about "Special Handling", say YES.  Then it will ask you to enter the date of the sale (do NOT enter the sales price).

Now figure out how much depreciation you took on the property, including the current year.  It may be helpful to print out the 'Depreciation and Amortization' worksheet (you will need to pay before you print it).  It is the side-ways worksheet.

Then go to "Sale of Business Property" and enter the information that it asks for, using your purchase price ($170,000) for the original basis (you may need to subtract depreciation from that to get your "adjusted basis", I don't remember exactly how it asks for the information).

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