Depreciation recapture - selling main residence after a period of rental

[mouyang1]

Please help: We had lived in our main home 5+ years until late 2019. Then we moved to a different state and rented out the original home out for 15 months. The tenants moved out by end of May 2021 and the home was sold by end of October 2021. My question is, how do I count the period after the tenants moved out? Should I count it as rental or something else? Also, when the TurboTax Home and Business does the depreciation recapture, it asks about Depreciation after May 6, 1997. Should I enter depreciation we've taken in previous years and assume TurboTax will take care of the depreciation for 2021 year automatically or should I include the depreciation for 2021 as well? Thanks for your help!

[JulieS]

After your tenants moved out in May, if you didn't try to rent the home out again, you should say your rental use ended when they moved out. If it was available to rent out, your rental use ends when you stopped trying to rent it out. 

The remaining time in 2021 that you owned it would be personal use, but not your personal residence. 

The depreciation for 2021 should be recaptured as well. All of these calculations will be done automatically if you report the sale in the Asset section of the rental section. 

Here is how to get to that section of your tax return:

1. Select Federal from the left side menu.
2. Select Wages and Income toward the top left
3. Scroll down/ expand the list and look for Rentals and Royalties.
4. Expand that section and find Rental Properties and Royalties (Sch E).
5. Click Edit on the right.
6. You should see a screen with, Your 2021 rentals and royalties summary, Click Edit to the right of the property that you sold.
7. When you get to the screen that says, Here's Your rental property info, scroll down to Assets and click Edit to the right of the property. 
8. In this section you can report the sale of the rental. 

[mouyang1]

Thanks for your reply! Just to confirm, the remaining time in 2021 that we owned the main home as personal use is not counted as "non-qualified use," just as the rental period is not counted as "non-qualified use" for our case (used and owned main home for more than 2 out of last 5 years before moving to a different state and renting out the home). Is my understanding correct?

[PattiF]

The rental period is considered nonqualified use, except when rented "after" it was used as a personal residence.   So, your understanding is correct and it would qualify as a sale of a personal residence.

@mouyang1 

[mouyang1]

Thanks! In TurboTax Home and Business, under Personal Income > Sale of Home > Home Sales Summary > Edit, it asks: Did You Use This Home for Anything Other Than Your Primary Home? I answered Yes but entered 0 for how many days was your home used for other purposes since 15 month rental and 5 month personal use came after our use as main home. Is my understanding correct?

In addition, TurboTax asks me Depreciation after May 6, 1997 in the same section. Should I enter depreciation amount here from 2020 and before or should I include depreciation taken in 2021 as well?

Thanks in advance!

[ColeenD3]

If you are being asked ,"Use This Home for Anything Other Than Your Primary Home?", you must be in the Sale of Home section. Since you rented the property in 2021, you should be entering this in the Rental section as a sale. You will be asked about using the property as a primary residence and can enter the number of days there.

Full steps for entering rental property:

• The first entry for the sale is found during the set-up of the property: Tell us about your situation this year/Click Sold or disposed of property

Next, the asset section of expenses will already be checked: 

*Assets

*Sold rental property

Includes info on the property you sold or disposed of. Since we know this applies to you, we've already selected it.

• After you click on Asset, you will be asked about the purchase: Tell Us About This Rental Asset
• In the screen Tell Us More About This Rental Asset, you will indicate the sale the date of the sale and the date you began using it for business. You can see the screenshot in a previous answer.
• Next: Confirm Your Prior Depreciation
• Next: Special Handling Required?
• Next Home Sale?
• Next: Sales Information. This is where you will be asked about the sales price.

You would include 2021 depreciation in the calculations.

[mouyang1]

Thanks for the above reply! But I am a bit confused here.  I followed and answered all the interview questions as listed in Rental section:

• Next: Confirm Your Prior Depreciation
• Next: Special Handling Required?
• Next Home Sale?
• Next: Sales Information. This is where you will be asked about the sales price

However, the information I entered ended up in the Sale of Home section. Did I do anything wrong?

[DianeW777]

It depends.  If you first entered information in the Sale of Home section you needed to remove or delete that information before entering the sale information in the rental activity.  Once that was complete you would proceed as directed by entering the sale in the Rental activity.

If you completed the steps in this way, then your return will be accurately reflected for taxable gain and home sale exclusion.

@mouyang1