Sell property use as rental property and primary property

[pinzhu]

I bought a house in 2018, I have another house so I live half time in this house, but I never report this house as primary or secondary house in Turbotax. I list another house as my address in Turbotax, I assume that treat the other house as my primary property? 

I rent the house in 2025.6 - 2025.12, and haven't decided if in future I should continue rent it out, convert it as primary property or live half time in this house like what I did in 2018-2025.6. f I plan to sell the house later, how should I report the sell?

I see three possibilities:

1. My 2018-2025.6 residence count as primary property. If I continue to rent house and sell house by 2028.6, it means I live 2 years and get $250,000 exemption except the depreciation recapture. 

2. This house count as secondary property in 2018-2025.6. If I sell the house immediately, this will treat as rental property with no $250,000 exemption at all. Because secondary property has no tax benefit.

3. This house count as secondary property in 2018-2025.6. If I move back in as primary property for 2 years. Do I get $250,000 exemption with depreciation recapture, or I need to do $250,000 * days use as primary property/total days own the house to get exemption amount. 

Should my 2018 - 2025.6 resident make this house as secondary property with no tax benefit?

[DianeW777]

It's possible to have a main home and a secondary home. The main home is eligible for the sale of home exclusion. A secondary home is a sale of an investment property and is not eligible for the exclusion.

The next question, to be clear, you rented the second home for six or seven months in 2025. If so, that rental income is taxable and you would be entitled to expenses for the period of time it was rented. If it was fully rented during that time, meaning you never used it for personal purposes during the last six months,  you should list it as a rental asset and enter your rental activity on Schedule E for 2025 (June-December). TurboTax will ask you when you placed the property in service which is the date it became available for rent.

1. In your scenarios based on having a main home the rental home is not your main home so number 1 does not apply.
2. This applies when it is sold. The depreciation will be recaptured to the extent of gain and there is no exclusion available.
3. This is a possibility however, the exclusion will be prorated based on days owned and rented. More details about this below.

Home Sale with Rental:

In your situation the sale should be reported as a sale of your home. This means that in the rental activity you must be sure to select in Property Info it was sold and when prompted select Special Handling (this stops TurboTax from looking for sale information in the rental).

When you enter the home sale in TurboTax it will ask for a couple of items that are needed to report the sale correctly.  

1. The total depreciation expense that was allowed during the period it was available for rent.  
2. The number of days the property was available for rent during the ownership period.

Results:

1. The amount of depreciation that was allowed will be completely taxable up to the amount of gain received on the sale.
2. The remaining gain if any, will be split between taxable and amount eligible for exclusion by using the following formula.
   • The total days available for rent will be divided by the total days owned to determine the portion of the remaining amount of gain that is taxable for the rental period
   • The balance will be eligible for the home sale exclusion
3. TurboTax will do all the calculations based on your entry

Steps to enter the Sale of Home in TurboTax: Wages and Income > Less Common Income > Sale of Home

1. On the screen Primary use of home select 'Yes'
2. Enter the number of days used as a rental (nonqualified use)
3. Continue to Depreciation after May 6, 1997 > Enter the total depreciation for rental period in both boxes

This will allow TurboTax to handle the sale with the correct amount of taxable gain and excluded home sale gain. 

You can decide your actions based on the information provided.