Investment Property or Main Home?

[Jan Chabot]

Investment rental property was purchased using like-kind exchange in 2004.  Property use changed to primary residence in 2007 and remained main residence until sold in 2024.   We lived in the property for 17 years.  At time of conversion 2007, a -$200,000 loss carried forward.  How do I report the sale:  is it considered sale of business property, or sale of main home?  Purchase price was $425,000, improvements $200,000, selling expenses $30,000, and selling price $750,000.  

[M-MTax · Accepted solution]

is it considered sale of business property, or sale of main home? 

Sale of a main home if it was your primary residence for 2 out of the last 5 years leading up to the closing. You lived in it for 17 years so that shouldn't be a problem.

You can use the Section 121 exclusion ($250,000 or $500,000 if you're married filing jointly) but you do have a recapture situation if you rented this home or used it for business purposes.

The IRS generally has a 5-year period for conversion to personal use that they look at but you've more than satisfied that requirement. 

[Mike9241]

the gain on the sale is first attributed to depreciation taken on both the original property and the exchange/ replacement property. any gain left after that qualifies for the 121 exclusion