topic Sale of primary residence "don't qualify for the exclusion" in Get your taxes done using TurboTax

Sale of primary residence "don't qualify for the exclusion"

dimatkach — Sun, 02 Mar 2025 00:24:48 GMT

I sold a house in 2024, that was my primary residence until 2022, and then I rented it out for two years.
TT asked if I lived in it for 24 months since October 16 2019, and I answered "yes", it asked for depreciation, and I entered the amount I depreciated while renting out.
On the next screen it says I don't qualify for exclusion, and owe $75k in taxes :(
Why is that??? It does not even provide any explanation, just says I don't qualify and that's it :(((

Re: Sale of primary residence "don't qualify for the exclusion"

DianeW777 — Sun, 02 Mar 2025 00:34:26 GMT

Yes, it can be confusing since the qualifying home for the exclusion was also a rental property. I will try to explain how this works when there is a gain on the sale. Double check your entries and calculations to be confident all answers are correct.

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.
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.

Make sure you have indicated for each asset in the rental activity that it was taken out of service.

To enter Passive Activity Loss Carryovers from a Prior Year for your Rental Property in TurboTax Online/Mobile or TurboTax Desktop:

Search (upper right) > type rentals > Click the Jump to.. link
Click Start (or Revisit) next to Rental Properties and Royalties (Sch E)
Click Yes
Click Continue
Click the Edit button next to the rental you'd like to add info for
Click Continue until you reach the screen entitled Do any of these situations apply to this property?
Scroll to the bottom of this page and check the box next to I have passive activity real estate losses carried over from a prior year.
Click Continue
You'll be able to input the carryover amounts on the next screen
In Property Info be sure to indicate it was sold and when prompted select Special Handling (this stops TurboTax from looking for sale information in the rental activity).

Re: Sale of primary residence "don't qualify for the exclusion"

dimatkach — Sun, 02 Mar 2025 00:42:41 GMT

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.

I understand that is what is _supposed_ to happen, but the #3 specifically is not happening: instead, it just says "you don't qualify for an exclusion" and treats the entire gain as taxable :(

Re: Sale of primary residence "don't qualify for the exclusion"

Mike9241 — Sun, 02 Mar 2025 06:28:26 GMT

@dimatkach did you enter the sale through the rental schedule or the home sale worksheet

if it was a rental at the time of the sale, the sale must be entered only through the rental schedule which you then link to the home sale worksheet

the sale is reported through form 4797, with the applicable home sale exclusion.

Note that if you indicated the land cost on the asset worksheet for the house, then some of the proceeds must be allocated to the land. Otherwise, the entire proceeds will be allocated to the house, and the cost of the land will be ignored for purposes of the gain.

did you by chance list the sale on both the rental schedule and the home sale worksheet? then you reported the sale twice.