You should only report the sale as Sale of Business Property. See steps by steps instructions below.
Unfortunately, it does not appear you lived in the house or used as primary residence for the past 5 Years to qualify for exclusion of gain of rental property sale
The exclusion rule applies If you sold the property for a profit and it was your primary residence for at least 2 of the last 5 years, to qualify for the capital gains tax exclusion.
To qualify for the exclusion, the requirements are:
1 - Ownership Test:
You must have owned the home for at least 730 days (2 years) of the last 730 days (2 years) prior to the closing date on the HUD-1 statement you received at the closing when you sold the property.
2 – Use Test:
You must have lived in the home as your primary home (not 2nd home or vacation home) for at least 730 days of the last 1826 days prior to the closing date on the HUD-1 closing statement you received at the closing when you sold it. The time it was your primary home does not have to be concurrent.
See the answer to the following FAQ for step by step instruction on how to report the sale in TurboTax.
https://ttlc.intuit.com/replies/3388350
You may also consider using the following FAQ to determine deductible cost/closing costs
https://ttlc.intuit.com/replies/4923666
You should only report the sale as Sale of Business Property. See steps by steps instructions below.
Unfortunately, it does not appear you lived in the house or used as primary residence for the past 5 Years to qualify for exclusion of gain of rental property sale
The exclusion rule applies If you sold the property for a profit and it was your primary residence for at least 2 of the last 5 years, to qualify for the capital gains tax exclusion.
To qualify for the exclusion, the requirements are:
1 - Ownership Test:
You must have owned the home for at least 730 days (2 years) of the last 730 days (2 years) prior to the closing date on the HUD-1 statement you received at the closing when you sold the property.
2 – Use Test:
You must have lived in the home as your primary home (not 2nd home or vacation home) for at least 730 days of the last 1826 days prior to the closing date on the HUD-1 closing statement you received at the closing when you sold it. The time it was your primary home does not have to be concurrent.
See the answer to the following FAQ for step by step instruction on how to report the sale in TurboTax.
https://ttlc.intuit.com/replies/3388350
You may also consider using the following FAQ to determine deductible cost/closing costs
https://ttlc.intuit.com/replies/4923666
thanks for this quick reply--just to make sure i understand-- do you mean that i should treat the entire transaction as though it was a rental the whole 12 years (instead of just 7?) and that i can ignore the aspect of using it myself as a second home for 5 years?
also- how do i deal with (deduct?) capital improvements (new furnace, kitchen, etc) that were put in while it was a second home (i.e., personal use- before it became a rental)
Because it was only rental for the past 7 years, you just treat it as rental property. The improvements made while personal home will go into the value of the home and increase the cost of rental property(and should have been part of the home depreciation.)