Background: I owned and lived in home as primary residence 8 years before renting it out for 2 years. In those 2 rental years I deducted $15,083 depreciation. As I lived in the home for 3 of the last 5 years I am filing the sale as a sale of my primary residence to avoid capital gains. I understand that I have to repay back the depreciation deducted during the time used as rental property but the software appears to be crediting it back twice, once in the Sale of Home and again in Sale of Business Property.
To document the home sale I initiated the process as a sale of a rental property since I had to report the rental income. At one point it asks if the sale of the rental property is being done as the sale of my primary residence and I select yes. I follow the prompts verifying that the home was eligible to be sold as primary residence and all looks good in the home sale section. In that section I can see a credit amount of $20,958 which is made up of $5,875 from making a profit on my home sale (after selling expenses) and $15,083 from the depreciation I have to repay. The problem is that the software also shows a credit amount of $15,083 in the Sale of Business Property which appears to be the depreciation being repaid again (screenshot attached). For whatever reason the software is forcing that depreciation in a second time and this happens regardless of how I initiate the sale of my home. Is this right? I don't believe it is but I'm wary about overriding the software and not confident I would do so correctly.
These are the forms I'm seeing the depreciation:
- Schedule D (Capital Gains & Losses)
- Schedule D Tax Worksheet
- Home Sale Worksheet
- Form 4797 p1 (Sale of Business Property)
- Form 4797 p2
