Sale of Home used for rental

[MaverickAl]

I was looking at Publication 503 for my property, which was sold on 11/7/2023. The property was our primary residence from 3/28/2014 to 8/2/2021. It was rented from 8/2/2021 and sold on 11/7/2023. Based on Publication 503 and the worksheet, the gain is excluded (total gain is about $200K vs exclusion is $500K for a married couple). I did not receive Form 1099-S after the sale (I just have the closing settlement documents), which, based on pages 18 and 19 of the publication, I do not need to report the sale( not sure if I am right) . However, I am not sure how I should report and file for recapturing the depreciation for the time we rented the house. What should I do in the application to dispose of this property? https://www.irs.gov/pub/irs-pdf/p523.pdf

[Carl]

You 'do' need to report the sale, only because you are required to recapture depreciation and pay taxes on that recaptured depreciation. Depreciation is not included as a part of the exclusion. However:

It was rented from 8/2/2021 and sold on 11/7/2021

Did you mean you sold it in 2023? If so, then you do need to report the sale, because of the required depreciation recapture you'll have to pay taxes on.

OTHERWISE:
If the property  was converted to a rental, and then sold in the same tax year of that conversion, you are not required to even take depreciation. Therefore, recapture would not be required.

[KrisD15]

If you sold at a gain, you will need to claim the depreciation you took on the property when it was being used as a rental, as depreciation recapture. This is taxed as Ordinary Income. 

(if you sold at a loss, the recapture could be limited)

I assume it was rented through 11/7/2023 and sold in 2023.

Yes, if it was your primary residence two out of five years you would be eligible for the exclusion. 

Be sure to enter the rental income and expenses for 2023 first. 

Indicate that the rental was sold. 

When you report the sale of the rental, report the sale proceeds as the same as the cost, so if the land is valued at 50,000 and the building at 250,000, report the land sold for 50,000 and the building for 250,000. Therefore no gain. 

If the program does not enter the depreciation, you must add the previous depreciation from Tax Year 2022 Form 4562 and the depreciation being claimed for 2023. 

This total depreciation will be "recaptured" on form 4797 and transfer to your 1040 line 14. 

@MaverickAl