Question regarding rental property taken out of service 12/31/24, but sold 5/15/25. Turbotax is forcing me to do the wrong thing!

Forum|Forum|3 months ago
April 8, 2026
1 reply
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I turned a primary residence into a rental and sold it less than 3 years later so I get the capital gains exclusion.

I had a lease until 12/31/24. I decided to sell the house in 2025. I did not hold the house out for rent in 2025 as I needed to sell to avoid cap gains.

Turbotax is telling me I need to claim depreciation for the 5.5 months in 2025, even though it wasn't a rental. It will not let me manually edit this number to zero.

If I say I sold the house on 1/1/25, (which I didn't) it still calculates .5 months of depreciation in 2025.
If I say I took the house out of service on 12/31/24, it gives me an error saying that is an illegal entry.

I am not supposed to claim this depreciation, but Turbotax is forcing me to. Even if I go in the forms, I can't edit the number.

I also have rental fees that weren't paid until 2025. (They delayed billing me for HOA fees and a plumber bill that were both legit rental expenses in 2024, but need to be claimed in 2025.) So the house needs to appear as if it is still a rental in Turbotax to claim these things.

The tax laws are clear as mud as how to handle this type of situation. There is no guidance, and some of it is contradictory.

Any ideas how I can claim the legit rental expenses that were paid in 2025? Any way to not have TurboTax add depreciation for a house that wasn't available to rent? And what to do about property taxes and mortgage interest? Does the property become an investment property if it's not up for rent? It can't be a qualified home as I didn't spend any time there those 5.5 months in which I was gettting it ready to sell. (I'm not claiming any of the costs to prepare it to sell as rental expenses. I figure I need to eat those.)

Our tax laws are so confusing and Turbotax guidance is just awful.

TurboTax Business Windows

DianeW777

Level 15

My advice is as follows. Take the property out of service 01/01/2025, it may calculate depreciation expense for a half of a month. To correct this you can add that same amount as income one the rental to cancel it out. Next follow the instructions below to report the sale (answer assumes you lived in this rental as your main home for 24 of the last 60 months.

Enter your rental expenses on your Schedule E as usual.

Home Sale with Rental:

In your situation the sale should be reported as a sale of your home. This means that in the rental activity you must be sure to select in Property Info it was sold and when prompted select Special Handling (this stops TurboTax from looking for sale information in the rental).

When you enter the home sale in TurboTax it will ask for a couple of items that are needed to report the sale correctly.

The total depreciation expense that was allowed during the period it was available for rent. Check your prior tax returns for this figure from the rental.
The number of days the property was available for rent during the ownership period.

Results:

The amount of depreciation that was allowed will be completely taxable up to the amount of gain received on the sale.
The remaining gain if any, will be split between taxable and amount eligible for exclusion by using the following formula.
- The total days available for rent will be divided by the total days owned to determine the portion of the remaining amount of gain that is taxable for the rental period
- The balance will be eligible for the home sale exclusion
TurboTax will do all the calculations based on your entry

Steps to enter the Sale of Home in TurboTax: Wages and Income > Less Common Income > Sale of Home

On the screen Primary use of home select 'Yes'
Enter the number of days used as a rental (nonqualified use)
Continue to Depreciation after May 6, 1997 > Enter the total depreciation for rental and home office in both boxes

This will allow TurboTax to handle the sale with the correct amount of taxable gain and excluded home sale gain.

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user17756490410Author

Level 2

So I'm a little confused. When you say "Take the property out of service" Should I put that I sold it on 1/1/25 instead of the actual sale date of 5/15/25?

When I get to the special handling, one of the options is if you converted the property to personal use. Technically, it just sat there, so I don't think I should say I converted it to personal use.

Also, as I go through the special situation questions it asks about Asset Sales Price, Asset Sales Expenses, etc. I don't see how I get about showing the sale on the Rental Biz section. It won't really let me...

If it is in the rental biz section as a sale of my home, I probably shouldn't include it on the personal side as well.

The software seems broken. I have legit rental expenses tied to that property from 2024 that I didn't get billed for until 2025, so the biz probably needs to remain intact. It was not converted to personal use as it sat there empty all of 2025. It is not a qualified property, so I probably can't claim property taxes or mortgage interest on this home in 2025 as a rental expense. I'm not sure I can claim the property tax at all as it wasn't a rental or a qualified personal use.

To do this method, On the personal tab, it's showing the sale date as of 1/1/2025 which doesn't match my closing documents as I sold it on 5/15/25

On the personal side of things, it does, it gets all screwy. It's asking me if I lived there 24 months out of 60, but if I move the sale date up to the ficticious one, then it isn't true and I can't have that or I lose my giant cap gains exclusion on sale of personal home.

Everything just seems to break now. I'd love to go in and just manually edit the depreciation on the form to 0 as that would solve my problem but it won't let me. I can't tell where Turbotax is taking my previous year's loss I couldn't take until I sold my home that carried over. It seems to have now disappeared.

You try to do any kind of hack to get it to work and everything breaks.

DianeW777

Level 15

Let's start with your first questions. I completely understand your reluctance, however your end results will be correct and that is what matters most.

Should I put that I sold it on 1/1/25 instead of the actual sale date of 5/15/25? Yes, the sale will not take place in the rental asset screens.
Converted to personal use selection is important - again it will not be sold inside the rental asset section.
Special Handling allows you to bypass the questions about sale in the rental asset and it should.
As indicated in my first response, Enter your rental expenses on your Schedule E as usual- for all expenses paid in 2025.
- You indicated the property was not available for rent in 2025 - no mortgage interest or real estate taxes can be used on Schedule E for this reason.
The sale date in the home sale should be the actual sales date of 05/15/2025.
Use the steps below to enter your passive activity loss carryover or confirm it is in place:
- You must go into the rental property income section first, then follow the steps to enter your carryover loss.
  - Any passive activity loss (PAL) carryforwards allowed would be listed on your Form 8582, Worksheet 5 or 6, in your 2024 tax return as 'unallowed loss'. If you have a PAL and it does not seem to be populated in your 2025 tax return you can take the following steps to enter it.
  - Use the magnifying glass to Search (upper right) > Type rentals > Jump to Rentals > Select Edit beside your Rental Activity > Under Less Common Situations > Review Carryovers, limitations, at risk info, etc. > Continue to enter your passive loss carryover. See the image below for assistance.
No it will not add extra income since you are equaling out the depreciation that should not be used, which is an intentional wash. Your carryover PAL will still be used on your Schedule E and reduce other income as intended in the year of disposition/sale of your rental.