How do I report the sale of rental property I lived in 2 of last 5 years for 2015 tax year?

[BudN]

I found instructions for the 2014 tax year, but I'm not sure that they apply for 2015. I did live in the rental property for 2 of the past 5 years, then rented it out, so I believe and very much hope that I can qualify for the capital gains exclusion. 

Also, I've been through this scenario before. I lived in the same property for 2 years (2005-2006), then rented out for 5 years (2006-2011). I then moved back to the property and lived in it for another 2 years (2011-2012), then rented it from 2012-2015 before I sold it. So do I have to recapture the depreciation from the first time I rented it, or can I start from the second time I rented it?

[DS30 · Accepted solution]

[edited] Yes, you can take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years.  You could live in it for two years and then rent it for three years and then sell it (so long as it is sold within the five year mark from when you first lived in it as your primary residence).

See this IRS link for more information on the exclusion:

https://www.irs.gov/taxtopics/tc701.html

If you rented the home before selling, then enter your home sale under the rental section. Select "Yes" to Home Sale under the Sale of Assets section under Rental Summary Screen. 

To enter this transaction in TurboTax, log into your tax return and type "rental (schedule e)" in the search bar then select "jump to rental (schedule e)", TurboTax will guide you in entering this information

Alternatively, To enter this transaction in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (Jump to full list)
4. Scroll down the screen until to come to the section “Rental Properties and Royalties”
5. Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)
6. If your rental property is listed, you will need to select "edit" to access this information. Otherwise enter your rental property information. (If you are entering your rental information for the first time, you will need to add the rental house as an asset under step 16)
7. Is This a Rental Property or Royalty? - choose rental a put rental information and address
8. What Type of Rental is This? - choose rental type (ie: Single family (home or unit where a single family lives))
9. Do Any of These Situations Apply to This Property? - select sold (screenshot #1)
10. Was This Property Rented for All of 2015? - answer questions based on your circumstances
11. Property Ownership - select your ownership percentage
12. Indicate if you Actively Participate - yes or no (If yes, this allows some of the passive losses to be used against passive income)
13. Did You Pay Anyone $600 or More for Work Related to This Property? - yes or no
14. Is Your Property in Any of These Designated Areas? - Usually "none of the above"
15. Review Your Rental Property Rental Summary (screenshot #2)
16. Select Sale of Property/ Depreciation section. Here is some additional information you will need to select under the sale of property section: 

• About 3 screens in, if the house is listed under this section, you will select that you want to edit this property
• About 4 screens more, check box that you sold the property under "Tell us about this rental asset" (screenshot #3)
• For the special handling screen - say "no"
• Home Sale - select "yes" if sale of main home.
• Sales Information - enter the sales price information (screenshot #4) You will need to allocate the net sales proceeds into asset sale and land sale. If your proceeds are not allocated, you can use the same percentage of asset and land from the original purchase to the sales proceeds

If you did not rent your home during the tax year, you will need to enter this sale under the Sale of Home section.

To enter the sale of your home in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (jump to full list)
4. Scroll down the screen until to come to the section “Less Common Income”
5. Choose “Sale of Home (gain or loss)” and select “start’

Say "yes" that you sold your main home and TurboTax will guide you on entering this information.  You will need:

• The date you sold your home and the selling price (from your closing statement)
• The date you bought your home and the purchase price (from your closing statement)
• The cost of any major improvements you made, so we can deduct them for you
• Form 1099-C if you sold your home at a loss (short sale)

Just remember to check the box to have your home sale reported on your tax return but ONLY if you receive a 1099-S (screenshot #5) 

Sale of rental house if conversion of a primary residence to a rental : In order to calculate the capital gain or loss when you sell a residence that had been converted to rental property, you need to know three things:

• Your adjusted tax basis in the property (both at the time of the conversion and the time of the sale)
• The sale price
• The fair market value of the property when it was converted to rental property

If the converted property is later sold at a gain, the basis for purposes of determining the capital gain is your adjusted tax basis in the property at the time of the sale. If the sale results in a loss, however, the basis used is the lower of the property's adjusted tax basis at the time of the conversion or the fair market value when the property was converted from personal use to rental property. This loss rule ensures that any deflation in value occurring while the property was held as a principal residence does not later become deductible upon your sale of the rental property; a loss on the sale of a principal residence is not deductible. As usual, you calculate your capital gain by subtracting your adjusted basis from the sale price of the property

[lisag7777]

I followed the directions from a similar question for 2014 tax year on how to do this in Turbo Tax, but Turbo Tax keeps telling me there is an error because I skipped the section (as directed in the thread on here) to put a date of sale in the Rental Property section. Since I've handled the sale in the "Home Sale" section of "Lee Common Income", is that fine to ignore the "error"?

[DS30]

You should select that you sold the rental but include the information under the sale of home section. Please see edited answer.

[reyes1978]

We also lived in our house 2 out of the 5 years but we did a short sale so it was a loss. Can I still add the sale under the Sale of the Home per your instructions? I did receive a 1099-S and 1099-C.

[michealdungan]

Are the rules the same for Tax year 2015 as they are listed above for Tax Year 2014?

[DS30]

Yes

[BudN]

I followed the instructions and entered the sale under the sale of a business asset, but now I'm showing a profit and I don't see how to take the exclusion. How do I take the capital gains exclusion since I lived in the property for 2 of the last 5 years?

[DS30]

If you did not get the gain exclusion under this section, you will need to include this sale under the sale of home section under the personal income tab>personal income>less common income>sale of home. Please note that the gain exclusion will NOT reduce the gain recapture that you will need to recognized for all depreciation taken on the rental property.

When you sell your property, you must pay 25 percent recapture tax (also referred to as Section 1250 recapture) as well as regular state income tax on the depreciation you claimed. (Remember the IRS will assume that you claimed the correct amount of depreciation every year—this is true regardless of whether you actually claimed any depreciation on your tax return). These two factors may cause your capital gain amount and capital gains rate to be higher than you might have expected.

What you will do is dispose of the assets under the rental section so that no capital gain or loss is reported (you may have to manipulate the assets sales amounts to get the sales to get an overall net "0" for all the rental asset capital gains and losses).

You will want to write down the total amount of depreciation take on each rental asset (accumulated depreciation plus current year depreciation) that was included with the rental property sale (rental house plus capital improvements). You will need this amount when reporting your sale of home. (This would be the total deprecation amount taken on the property - This question will come up under the home sales section).  

When you get to the end of this section, the total amount of capital gain should equal all depreciation taken (or assumed taken) on this converted home to rental property. This is the depreciation recapture amount.

[enid556]

I need to file and amend my 2019 tax return