Where to record disposal of rental property

[BGS2]

Good Afternoon!

I converted my primary home to a rental in January 2021, after living in the property for 20 years. I sold the property in April 2023, and pass the 2 out of 5 year test.

I will  sell my current home within the next six months. I have resided here since September 2022.

I realize that I can treat the rental as an asset disposal or as a sale of primary residence in Turbo Tax.  However I may wish to pass on any gain on this property and take the sale of primary residence exclusion when I sell my current him (larger gain?). I don't see the option to pass on the gain for the rental property if I use the Schedule E asset disposal method. 

In any case, I do wish to use the appropriate tax treatment for my situationm 

[Opus 17]

What do you mean "pass on the gain"?  Do you mean a section 1031 exchange?  That's complicated and I can't help you.

If you want to sell this as personal property and claim the exclusion, you still have to recapture the depreciation.  I think the program will do that in the schedule D interview ("sale of stocks and other investments" -- one of the choices is "sale of my home").  But I don't know how Turbotax handles the closeout on schedule E.  You need to talk to someone who knows that section of the program better.  Let me try paging a couple of people...

@AmeliesUncle  @Hal_Al  @rjs 

[Opus 17]

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@tagteam wrote:

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@Opus 17 wrote:

What do you mean "pass on the gain"?  Do you mean a section 1031 exchange? 

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@BGS2 means pass on using the home sale exclusion for the rental property that still qualifies for that exclusion.

@BGS2 plans to sell their current primary residence within the next six months and wants to use the home sale exclusion for that house, not the rental property.

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OK, well in that case they just need someone more familiar with that area of the program.  If you are entering the sale of a personal home in the schedule D interview, there is a question about whether you want to use the exclusion, and you can turn it down even if you qualify.  I would assume the same option exists in the schedule E interview, but I have not used that section of the program so I don't know where the option is. 

[Opus 17]

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@tagteam wrote:

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@Opus 17 wrote:
.....in the schedule D interview, there is a question about whether you want to use the exclusion, and you can turn it down even if you qualify.  I would assume the same option exists in the schedule E interview,...

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You are not understanding the issue; they do not need to use any option in the program in the Schedule E interview.

Again, they do not want to use the home sale exclusion in conjunction with the sale of their rental property. As a result, they simply need to enter the sale during the Schedule E interview as one would without regard to the two out of five rule.

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But the customer says "I don't see the option to pass on the gain for the rental property if I use the Schedule E asset disposal method. "  

So your answer is that the reason the customer is not seeing an option to not take the exclusion in the schedule E interview, is because the schedule E interview never includes the personal capital gains exclusion, so there is no option to turn it off?

[BGS2]

Thanks so much for responding.

I am thinking I need to report the sale of rent AND personal residence, and of course complete schedule E for the time rented in 2023.

[BGS2]

Thank you for helping!

[Opus 17]

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@BGS2 wrote:

Thanks so much for responding.

I am thinking I need to report the sale of rent AND personal residence, and of course complete schedule E for the time rented in 2023.

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Not really.  You only sold one piece of property.  If you don't want to use the personal exclusion, answer "No" to the question "Was part of this asset your main home" as @tagteam illustrated.  You will pay the appropriate capital gains, and preserve your personal exclusion to use when you sell your current home.  

[AmeliesUncle]

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@BGS2 wrote:

However I may wish to pass on any gain on this property and take the sale of primary residence exclusion when I sell my current him (larger gain?).  

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While certainly possible, it is usually to have a larger gain from a property you've only had a few years, versus a property that you've had more many years.  As I said, it is certainly possible, but you'll want to compare them closely.

However, in some circumstances you may be able to claim the exclusion on BOTH houses, if you are moving out of the second home for a qualifying reason.   If you tell us details about why you are moving out of your current home, we may be able to help you determine of both homes could possibly qualify for the exclusion.