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2 of 5 last years - selling home that was a rental property for 1 year after moving

I bought a townhome on November 6, 2009, which I lived in until January 2022 for $140,000. I bought a new home in 2021 because I got married and kept the townhome as a rental property. I rented it from January 15, 2022 to January 15, 2023. I ended up selling the rental property on March 8, 2023 after not being able to secure a tenant. I sold the property for $355,000. I am using the 2 of 5 last years criteria, which covers me up to $250,000, and my net ended up $215,000, which would exempt me from taxes.

 

Because I claimed depreciation for a year and a few months, I knew I needed to recapture this on Form 4797. The amount calculated for depreciation was $3,833. I went through the Asset Entry Worksheet in Turbotax where I listed my townhome as being valued at $140,000. I am stuck on the part where it says to enter sales price and land sales price, business portion only. Since I don't have to pay taxes on the $215,000, I was guessing that amount would be $0. However, then it shows me as having a loss of $135,334 after the depreciation is taken into consideration. Am I thinking about this correctly? Am I able to write off that amount of loss or am I missing something?

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3 Replies
DaveF1006
Expert Alumni

2 of 5 last years - selling home that was a rental property for 1 year after moving

land sales price is 0 but the sales price is $315,000. Your total gain on the property should be $315,000 -140,000 - 3833=$211,167.  The depreciation taken is recaptured by reducing your original basis by the amount of the depreciation.

 

No, you won't be able to write off a loss if it existed. now my question is, how did you calculate the depreciation? Rental property is calculated on a 27.5 straight-line deduction. This calculation may not be exact but close but $140,000/27.5= $5091. Did you allocate a portion of your $140,000 basis to a land basis? 

 

 

 

 

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2 of 5 last years - selling home that was a rental property for 1 year after moving

Land was assessed at $30,000. Property was assessed at $110,000. I based this on property record assessments.

 

When I put full sales price of $355,000, it charges me taxes on the $215,000 because it is treating it as fully a business, and under the 2 of 5 rule, that amount is exempt from taxes. 

 

TurboTax's audit software says I'm doing it the right way, but I wanted to verify.

 

Thus my question.

DianeW777
Expert Alumni

2 of 5 last years - selling home that was a rental property for 1 year after moving

There will be some taxable gain strictly based on the depreciation used during the rental period.  The following steps will help with the sale of home and rental property.  Be prepared with the total days you lived in the home and the total days it was a rental.

 

  1. Search (upper right) Type rentals > Click the Jump to ... link > Edit beside your rental > Edit beside the home asset(s).
  2. Say 'No' to 'Special Handling'. TurboTax will stop the depreciation at the appropriate month.  
  3. When you get to the 'Home Sale' screen answer 'Yes'.
  4. Answer 'No' it was not a separate dwelling
  5. Answer 'Yes' to 'Do you want to report the sale of this asset on the Home Sale Worksheet for your home sold?'
  6. Continue to answer the questions about sales price and sales expenses, and Time lived in the home
  7. Answer the number of days it was used for rental purposes 
  8. Complete this for each asset that is part of the rental property taking note of all depreciation and cost basis for each asset (if there are more than just the home and land).

                                                          

@FromHItoDrhm 

 

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