Sale of primary home which was used as a rental for 10 months

[bayo]

Thank you everyone for your reply. I am just curious that if someone decides to report this as an asset sale, then what should be the cost basis of the asset ?

[Carl]

My main question is that do I report this as Sale of Primary Residence OR Sale of Asset ?

When reporting this sale in the SCH E section of the program, there's a screen that will ask you "does this sale include the sale of your primary residence?". Just answer that question YES and you'll be presented additional screens you need to reply to for the exclusion.

As far as the Assets/Depreciation section goes, You *MUST* work through it in order to report the sale. Now based on my understanding of the IRS pubs, if your acquired and then sold this property in the same tax year, then you are not required to take depreciation. But their are others that would interpret the pubs differently. I myself would just leave it as is, because since the acquisition and sale occurred in the same tax year, it's not going to make much difference in your tax liability that would be worthwhile. Not taking the depreciation, is almost the same as taking the depreciation, and then recapturing it in the same tax year. If your overall AGI puts you in a tax bracket above 25%, then recaptured depreciation (which will be so small for you, I can't see why you would care) will be taxed anywhere from zero percent, to a maximum of 25%, not to exceed the "lower" of your tax bracket, or 25%.

On top of that, since you owned the property for less than a year, your gain will be taxed at the higher, short term capital gain rate anyway.

[tagteam]

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@Carl wrote:

.....If your overall AGI puts you in a tax bracket above 25%, then recaptured depreciation (which will be so small for you, I can't see why you would care) will be taxed anywhere from zero percent, to a maximum of 25%, not to exceed the "lower" of your tax bracket, or 25%.

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It is not at all difficult to discern why @bayo "would care" since the difference here is between paying up to 25% on unrecaptured Section 1250 gain and absolutely nothing if the entire gain were excluded under Section 121 of the Code.

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@Carl wrote:

.....since you owned the property for less than a year, your gain will be taxed at the higher, short term capital gain rate anyway.

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@bayo clearly stated, "I bought my primary home in 2012...." in the original post in this thread so any gain would clearly be long-term, not be short-term.