How to report capital gain on the house that was owner occupied but also concurrently partially rented out? Rental income was already reported on each year’s tax return.

[sliu]

The owners lived in their primary residence in NYC for > 5 years but also rented out part of the house concurrently. Tenants moved out Oct 2016. The house was sold on Feb 2017. The rental income was reported on each year's tax return (up to 2016) and no depreciation was taken. How should the owners handle the capital gain on the house after it was sold? The owners should qualify for $500K deduction since they lived in the house > 2 years. Does anyone have insights on how to handle the rental that is also owner occupied? Appreciate and thanks for your help in advance!

[Hal_Al · Accepted solution]

Yes, you show it as a home sale and claim the (up to) $500,000 home sale capital gain exclusion. But, you must recapture (pay tax on) the depreciation you claimed (or should have claimed) when you rented it out. TurboTax will ask if you had any deprciation