We are considering selling our home (primary residence) that has a room we rented to our son.

[AndrewA87]

We are considering selling our home (primary residence) that has a room we rented to our son.

The question is where do we report the sale of our house and how do we handle the depreciation recapture tax for my son's room?

We have been reporting my son's room rental as income.

I know we will not have to pay capital gains tax because we have live in our home for the last 2 years and it is worth about $250,000.00.

[Critter-3]

If it is your personal primary home:

Enter your sale of your primary residence (which may require an upgrade in TurboTax), please follow these steps:

1. Once you are in your tax return (for TurboTax Online sign-in, click Here), 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”
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’
6. You will want to use the "Easy Guide" to determine the adjusted basis on this home

[AndrewA87]

Thanks for your reply.

I have a couple more of related questions.

I just did a test on may last year's return where I said I sold my home as you instructed me to. I saw where it asked for the depreciation but after reviewing the finished return I did not see where it applied any depreciation recapture tax. I thought I would have to pay 25% of my depreciation that was taken.

Also, is there anything that needs to be done Rental Properties and Royalties section of Wages & Income. That is where I entered the rental income and depreciation?

Thanks!

[Critter-3]

Step 1 ... take the asset out of service to stop the depreciation ... convert to personal use ... do NOT sell it.

Step 2 ... save a PDF of the return with the worksheets to get the total depreciation taken to date.

Step 3 ... use the sale of home section to report the sale ... enter the depreciation take to date. Then review the sale of home worksheet, the form 4797 and Sch D & E carefully.   If things are not making sense then call TT support for assistance or upgrade to one of the LIVE options for one on one assistance.

[AndrewA87]

Thanks!

I see that the depreciation shows up in the 1040 line 7 (Capital gain or (loss). Attach Schedule D if required).

So I guess it is taxed as my current tax rate and not the 25% that I have read about.

I did not see the Form 4797 (Sales of Business Property) which makes sense since I am selling my primary residence.

[Carl]

Capital gains are taxed anywhere from 0% to 25%, with the average being 15% for most people. Recaptured depreciation is taxed as "ordinary" income, and depends on your overall tax bracket your AGI falls into after recapture.