Solved: Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?
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k-courtney1981
New Member

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

 
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Carl
Level 15

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Assuming the renter was the last person to move out of the property prior to the sale, that would mean the property remained classified as residential real estate the entire time it was empty. Therefore you will not indicate converting it. There is one little trick you have to perform though, so you can properly report the sale in the rental section.

Work through the property "as if" it was rented in 2017. When asked for rental income, enter a zero.
When asked for number of days rented, enter a 1 (one day rented)
When asked for days of personal use, enter zero.
For rental expenses, if you paid utility bills from 1/1/2017 up until the time you sold it, you can claim those. They won't be "allowed" as rental expenses since you have no rental income from which to deduct them. But they will be "allowed" as a realized loss when you report the sale. The program will take care of that in the background for you.

Don't bother claiming repairs and maintenance expenses if incurred, since you were not preparing the property for rent. You will instead include those costs as sales expenses, since you were preparing the property for sale.

Note also that to qualify for the capital gains exclusion, you must have lived in the house for at least 730 days of the last 1826 days you owned it, counting back from the closing date of the sale.

Now with that, here's how to report the sale in TurboTax.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in  2017". Select it. After you select the "I sold or otherwise disposed of this property in 2017" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically when working through an asset you select the option for "I stopped using this asset in 2017" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.


 

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6 Replies
Carl
Level 15

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Assuming the renter was the last person to move out of the property prior to the sale, that would mean the property remained classified as residential real estate the entire time it was empty. Therefore you will not indicate converting it. There is one little trick you have to perform though, so you can properly report the sale in the rental section.

Work through the property "as if" it was rented in 2017. When asked for rental income, enter a zero.
When asked for number of days rented, enter a 1 (one day rented)
When asked for days of personal use, enter zero.
For rental expenses, if you paid utility bills from 1/1/2017 up until the time you sold it, you can claim those. They won't be "allowed" as rental expenses since you have no rental income from which to deduct them. But they will be "allowed" as a realized loss when you report the sale. The program will take care of that in the background for you.

Don't bother claiming repairs and maintenance expenses if incurred, since you were not preparing the property for rent. You will instead include those costs as sales expenses, since you were preparing the property for sale.

Note also that to qualify for the capital gains exclusion, you must have lived in the house for at least 730 days of the last 1826 days you owned it, counting back from the closing date of the sale.

Now with that, here's how to report the sale in TurboTax.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in  2017". Select it. After you select the "I sold or otherwise disposed of this property in 2017" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically when working through an asset you select the option for "I stopped using this asset in 2017" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.


 

View solution in original post

k-courtney1981
New Member

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Thank you so much!
k-courtney1981
New Member

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

One last “silly” question.  Can the mortgage payments be listed as expenses along with the utilities during the months when the rental property was vacant?
TomD8
Level 15

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Mortgage interest (but not principal) and utilities can be listed as rental expenses if the property was available for rent during that time.  Otherwise you can deduct the mortgage interest (but not the utilities) on your Schedule A.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

TomD8
Level 15

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Date of Sale = 4/25/2017

5-Year "look-back" period = 4/25/2012 to 4/25/2017

Date You Moved Out = 1/16/2014

4/25/2012 to 1/16/2014 = less than the required two years

Therefore you do not qualify for the capital gains exclusion.

You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Carl
Level 15

Bought house in 2006 @137.5K; moved out 1/16/2014 & rented it until 12/1/16 & sold it 4/25/2017 @ 152.5K. does this meet 2/5 years criteria? How do I report sale for tax?

Right. If you look at the IRS pub too, it doesn't specify days. It actually specifies months something like " 24 of the last 60 months you owned it". It also clarifies that the 24 months do not have to be consecutive months either.
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