Sale of a rental property that was main home for a few months

[Ray1]

I bought a duplex property (one loan) on 10/2018 for ~$250k. The intended use was to buy it as main residence. However, since there were tenants in both units, both units were rented until 03/2019 that I occupied one unit as primary resident. One unit was always rented all the times.

I put some $20-30k for renewal in the unit that I lived in.

For job related reasons I moved to another state on 09/2019, therefore it was a primary resident for ~6 months. 

Sold the property on 10/2020 a little over 2 years for ~450k

1- What type of reporting should I do? 

2- Do I get a portion of home sale exclusion because my move was due to change of job?

I'm asking because it seems like I may be able to get some exclusion based on the following information: 

"To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it.

What if you have to sell your home even though you don't comply with all the requirements for the exclusion? This would occur, for example, if you sell before you have lived in the home for two years, or if you have already used the exclusion for another home less than two years prior to this sale. If this happens, you may still qualify for a partial exclusion if you have a good excuse for selling the property. Good excuses include:

- a change in your place of employment

..." from (https://www.nolo.com/legal-encyclopedia/qualifying-the-home-sale-exclusion-without-living-in-the-hom...)

[Mike9241]

you may qualify for a partial exclusion due to the job change. safe harbor based on distance - 

1) the change occurred during the period the taxpayer owned and used the property as a main home

2) the new place of employment is at least 50 miles farther from the home that was sold than the former place of employment.

you still face several issues.  the first is the allocation of the sales price. since you put in $20-30K of improvements it may be necessary to allocate more of the sales price to your unit rather than a 50/50 split.  second. since your unit was at one-time rented you must first recapture the depreciation allowed or allowable on it as section 1250 recapture up to the amount of gain before you can use any of the partial exclusion that you qualify for. there would of course be recapture of the depreciation on the other unit that was always a rental.

computation (either days or months can be used but not both in this calculation)

1) maximum exclusion (assuming you aren't married) $250,000 - IRC sec 121

2) period used as your main home

3) period owned

4) smaller of 2 or 3

5) period since last time IRC sec 121 exclusion used if no previous exclusion enter line 4 on line 6 

6) otherwise smaller of 4 or 5

7) divide the amount on line 6 by 24 if months used otherwise 730 if days used (decimal to 3 places0

😎 maximum exclusion 1 times 8

[Ray1]

Thanks for the guidance!

Just a follow up question, would it make sense if I calculate the portion of the ownership while main home as:

Length of stay at unit 1 /(length of ownership of unit1 +length of ownership of unit2)

eg:  6 /(24+24) months =~ 3 months or 12.5% personal usage

or should I do something else?

[Mike9241]

this is a situation Turbotax isn't good at.   you would report the sale of the rental unit through the schedule e worksheet for it. normally 50% of the proceeds and the sales costs would be allocated to it

for the personal portion, you need to go through the home sale and adjusted basis of the home sold worksheet so you can record the 50% of original cost, cost of improvements and the prior depreciation taken. here too you would allocate 50% of proceeds and selling costs.

this requires separate reporting the period used as a primary residence is exactly that. 

[Critter-3]

I highly recommend you seek local professional assistance to file this return or upgrade to one of the live programs in TurboTax so you can get this done correctly. If you did not set up the schedule E depreciation properly by dividing the home into two pieces this is going to be more difficult. Again please seek professional guidance for this difficult return since the TurboTax program will not handle it properly especially if you didn’t set it up properly.

[Ray1]

would it mean that I have to do the same thing for 2019 depreciation as well? should I amend 2019 return?

if my 2019 depreciation is way smaller than what it should have been, does it make sense to amend? (in this scenario, I loose money because although I haven't received the full amount of depreciation in 2019, I have to substract it from my costs) but would it make sense to take the trouble of amending?

Also is it better to hire a local CPA or if I have a high end TurboTax account with expert support will be as good.

[Critter-3]

Either way is fine ... a local CPA (or better yet an EA)  is nice since you can talk face to face.   If you upgrade to the LIVE CPA versions then you will still get skilled assistance but not face to face or in real time. 

[Hal_Al]

The term "partial" exclusion is somewhat of a misnomer.   The actual rule is a reduced maximum exclusion for a job change.  You may exclude the entire gain attributable to your residence time, but no more than 19/24 (79%) x $250,000 = $198,000.