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March 2, 2021
Question

10/2013 we purchased our home and lived there until 7/2015. House became a rental and we sold it 6/2019. Would this be a sale of home or business property?

  • March 2, 2021
  • 2 replies
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The house was not intended to be a rental. We purchased it as our primary home and lived there until we had to move for my husband's job. I have tried researching the forums, etc and I have gotten information going both ways. For the 5 years prior to the sale, we lived there 1 month (2 if you count the time it was vacant before renting). According to some, this makes it the sale of a home.

Since it was used as a rental, some told me it was the sale of a business property.

Just not sure what to list it as...

2 replies

ColeenD3
March 2, 2021

It is not the sale of a home. You would have had to live there 2 out of five years ending on the date of sale. It is sale of rental property.

 

 

To this rental sale under the sale of a business property in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Business" tab ("Federal Taxes" tab in Premier)
  2. Next click on “Business Income and Expense" ("Wages and Income" tab in Premier)
  3. Next click on “I’ll choose what I work on” (Jump to full list)
  4. Scroll down the screen until to come to the section “Less Common Business Situations” ("Business Items" in Premier)
  5. Choose “Sale of Business Property” and select “start’
  6. Select "Sale of business or rental property that you haven't already reported"
  7. Sale of Business or Rental Property - yes
  8. Enter all the information about your Rental Property Sale here

 

  1. Description - address of property
  2. Date acquired - original acquisition date
  3. Date sold - date of sale (should be on 1099-S)
  4. Total sales price - total sales price (should be listed on 1099-S)
  5. Cost of property (or tax basis) plus expenses of sales - original cost plus any capital improvements plus expenses of sales
  6. Depreciation taken on this property - total depreciation taken property when rental (Please note the IRS will assume that you have taken the correct depreciation on your rental property while your property was available for rent regardless of whether you have actually take it or not).

 

March 2, 2021

Coleen - but is it not correct that since I did live there some time during the last 5 years that I qualify for a partial exemption?

 

When I went through schedule E, marked all the assets as sold, entered the property as an asset and that it sold, it has me go through questions including how many months in the last 5 yrs we lived there abs calculated an exemption.

Carl11_2
Employee
March 2, 2021

You could qualify for a partial exclusion, if your move was a requirement of employment or job change, or for medical reasons. Otherwise, you just don't qualify unfortunately.

 

 

Carl11_2
Employee
March 2, 2021

It's simplest to report the sale in the SCH E section of the program.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

March 2, 2021

Carl - when I did this it did come up with a partial exemption since I did live there for some time within the 5 yrs prior to the sale. Also we did move because of employment so that appears to be a valid reason for the exemption. 

But as you see above, I have a response saying that is not correct. Hence my confusion. 

Carl11_2
Employee
March 2, 2021

IRS Publication 523, page 6 at https://www.irs.gov/pub/irs-dft/p523--dft.pdf

That's the 2020 version still in draft mode. I can't find the one for 2019. But I know it's the same.