How do we treat the sale of a house we lived in for 2 of the last 5 years, but also rented?

[cimmel]

We originally bought the house in 1999 for 128k.  We converted it to a rental in August of 2013 with a FMV of $155k.  The house sold for $169k in June of 2016.  The house was a primary residence just over 2 of the prior 5 years and we have used it as a rental and taken depreciation since putting it into rental service.  I have completed the section of "Sale of Business Property", but can't figure out how to get the capital gains exclusion for sale of a primary residence.  

[TaxGuyBill]

I would report in the rental section.

When you edit the "asset" and check the box it was sold, you can say "No" when you get the "Special Handling" screen.  It will then ask you about the sale and a bunch of questions to determine if you qualify for the 2-out-of-5-year exclusion.

You will still owe tax on the depreciation that you took.

[Hal_Al]

You can report the sale,  in the rental section; but I think it goes smoother, in TurboTax,  if you report it as home sale. 

In TurboTax (TT), enter at:

- Federal Taxes tab

 - Wages & Income

Scroll down to:

-Less Common Income

   - Sale of Home

You will be asked if you had a period of non qualified use, such as rental. Answer No. The following appears on that screen: "Exceptions.   A period of nonqualified use does not include:

Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home". In TT, at the page where it asks if you had any other use of the home it says: "Note: if you used your home for reasons other than primary residence, after it was no longer your primary residence, select 'no'''.

You will then be asked  if you claimed any depreciation. Answer yes and enter the depreciation claimed while it was rented

[TaxGuyBill]

That will report it on Form 8949 and Schedule D.  It was a rental when it was sold, so the sale belongs on Form 4797.

[cimmel]

I completed both the sale in the rental section and the sale of home ... So, am I double reporting the sale now?  Or do I have to report the pro-rata share of the "business sale" in the rental section and the other under the home sale?

[Hal_Al]

No, only enter it once. Either place the interview will ask  the right questions.
I don't think form 4797 is needed, as TT puts the depreciation recapture on line 19 of Schedule D, so it is taxed properly

[Critter]

Never ever enter anything in the program TWICE.... remove the sale in the Personal Income section.

[cimmel]

So, here is where I am confused:

Under the sale of the rental property, it says to report it as Business Property Sale.

Enter only the date of sale or disposition for this property if you disposed of this asset in any of the following situations:

 - You gave this asset away.
 - You converted this asset to personal use.
 - This asset was an intangible asset not considered section 1245 property.
 - The business-use percentage varied over the life of this asset.
 - You traded this asset for like-kind property.
 - This asset is a rental, home office, or home office asset that qualifies for the exclusion of gain from the sale of a personal residence.

If you disposed of this property by any of the above means, enter your sales information later in the interview under "Business Income/Sale of Business Property."


Under the Business Property Sale it says to report the non-business use as personal property sale.

If you used the asset 100% for this business, enter total amounts here. If you used the asset for any other purposes, you must allocate the total amount to the percentage of use for this business.

For example, if you used this asset an average of 75% for business over the course of your ownership, and you sold the asset for $1,000, you would allocate the net sales price as follows:

$1,000 X 75% = $750

Allocate your cost or basis in the same manner.

Report the non-business percentage of the property separately as the sale of "other investment or personal use property."

So this is why I was thinking I needed to allocate 17% of the sale/cost to the Sale of Business Property and the remaining to Sale of Home/Personal property.

Thanks for all of the advice.

[TaxGuyBill]

The problem with those screens is that it doesn't really take into account things like real estate and homes.

If you report it all in the rental section (say "No" on the Special Handling screen", and enter the full sale information (don't prorate it between business and personal), it will be reported correctly.

[carlos3]

I hope that this thread is not too old for me to gain a bit more clarity: When I take TaxGuyBill's advice and report my home sale while in TurboTax's rental section, the software does not generate a Form 4797.  In his initial comment ("It was a rental when it was sold, so the sale belongs on Form 4797.") he suggests that Form 4797 is unnecessary whenever a house is a residence when sold. So just to be sure, let me apply this to my situation: I qualify for a partial exclusion in the sale of my house despite nonqualified use (by a tenant) that ended in May 2018. The house was my residence from June 1, 2018, until it was sold on November 19, 2018. Am I correct in concluding that I am NOT required to file a Form 4797 with my 2018 federal tax return?

[cmanders01]

I lived in a condo for 3 years and then rented for 2. The key question in the wizard: "Was this asset included in the sale of your main home?" Make sure you click "Yes". You can read the details by clicking on the links in the question.