I sold my Home which I lived in 5 years. On the property was a cottage which I rented out. How do I handle the sale of the cottage ? reduce cost basis by depreciation?

How have you entered the rental in the past? As one separate property or as a portion of the entire property? 

Whichever way you have treated the rental, you will treat the sale. You will file the sale of your primary home and if the property is treated as one single property, indicate that there was rental use and enter the depreciation.

I used schedule e ,supplemental income and loss 

to record the cottage rental,expenses and depreciation 

Since you have recorded the rental income, expenses, and depreciation on Schedule E in TurboTax, it will be relatively easy to record the sale of the rental cottage. 

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

    @Greenzoe