Selling a second home

[hikemoon]

From 1995 to 2013 my home was my primary residence.  From 2014 to 2021 I rented it out because I landed a job out of state and had to move.  Now in 2022 the home is a second home and I still live out-of-state.  If my income this year is less than $40,000 and I decide to sell this year, what would the IRS expect me to pay in Income and more importantly Capital Gains Tax?

[LeonardS]

You will report the sale of the rental property as a sale of business property.  You will have to pay income tax on your taxable income as well as on any capital gains from the sale of your rental property. 

To enter the sale of your rental property follow these steps:

1. With your return open in TurboTax, search for rentals and then select the Jump to link in the search result.
2. Answer Yes to the question Did you have any income from rentals or royalties?
3. When you get to What are you here to report? select Rental property and fill out the description, address, and owner.
4. When you hit Tell us about your situation this year check the Sold box along with any other boxes that may apply.
5. Continue following the onscreen prompts to enter info about your rental property.
6.  When you get to the Review your rental property info screen. You can report the sale in the Expenses/Assets (Depreciation) section, along with any other pertinent info (like income and expenses)
7. You do not enter the capital gains directly, TurboTax will automatically calculate your capital gain or loss on the sale using the information you have provided.

[hikemoon]

Thank you for answering my question and your expertise, it was very helpful.  I wanted to add 2 more questions:  Does the IRS consider the fact that I had to move away from the primary residence for out of state work, which led me to rent out the home long-term?  I read in an IRS instruction booklet that this might make me eligible for the $250,000 exclusion on gains, but it was unclear.  Also, what if the rental operated at break-even or even a loss in some of those years it was rented?  Does it matter?  Thanks again.

[LeonardS]

No, the fact you had to move does not affect the sale of your rental property.  The $250,000 exclusion on gains only applies to the sale of your main home not to rental property.

[Carl]

Does the IRS consider the fact that I had to move away from the primary residence for out of state work, which led me to rent out the home long-term?

The "2 of last 5 years" suspension only applies to active duty military and DOD civilians who move under official government orders. So you don't qualify for the suspension or the extension.

take special note. Do "NOT" under any circumstances and with no exceptions select the option for "I did not rent or attempt to rent this property in 2021". If you do, then your SCH E and all supporting information will be "DELETED". You will lose your depreciation history and your PAL carry over losses information.

[Mike9241 · Accepted solution]

the rule is for personal residence converted to rental to qualify for full exclusion it would have to have been your principal residence for 2 out of 5 years before the sale.  even under the partial exclusion rules due to job change only the period within the 5 years before the sale would count. you haven't lived in the house for about 8 years so you get no exclusion.

of your gain, first, you will be taxed on depreciation recapture.  only if there is an excess gain over the recapture amount would the excess be taxed as long-term capital gain