home sale

[grasciella071]

I sold my home in Nov'20. I purchased it sometime in 2007 for $440,000 and sold it for $600,000. This was my primary residence and lived there for all the time I had owned it. I also rented part of my home not long after acquiring it. During 2020 I have no rental income at all. Would I be able to qualify for the 2/5 yr exception and $250,000 gain exemption? Do I have to include the depreciation taken from previous years? 

[Mike9241]

if you did not personally occupy the rental portion for 2 out of 5 years before the sale, that portion does not qualify for the home sale exclusion.   yes, the depreciation you took or should have taken needs to be reported. I not sure Turbotax can properly handle your scenario. 

[Opus 17]

Yes to both. 

Yes, you qualify for the exclusion as long as you lived in the home as your main residence, which you said you did.

But you also must always take the depreciation into account, and that's taxable even if you qualify for the exclusion.  Depreciation reduces your cost basis and must always be recovered when you sell.

For example, let's assume that over the course of 14 years, you claimed or could have claimed $80,000 of depreciation.  That reduces your cost basis to $360,000, and your capital gain is $240,000.  The first $80,000 is depreciation recapture, and is taxed as ordinary income with a maximum of 25%.  The remaining gain of $160,000 is eligible for the exclusion, and since you qualify and the amount is less than $250,000, that will be tax-free.