Can I use Turbotax Deluxe to report the sale of a rental (investment) property in 2022? How? I also qualify for the 2-out-of-5 rule. Do I need to upgrade to Premiere?

Forum|Forum|3 years ago
April 10, 2023
1 reply
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Property was used as a rental for last 2 years. It was a primary residence for the previous 3 years.

I can't find on Deluxe where to input the info for sales and eventually info for the 2 out of 5 rule.

TurboTax Online

HelenC12

If you're using TurboTax Online, you'll need to upgrade to TurboTax Premier or higher version.

TurboTax Premier is used to file investment taxes, including crypto, stocks, and rental property

TurboTax Premium covers self-employment and investments including stocks, bonds, ESPPs, crypto, and rental property income.

The TurboTax CD/Download versions Deluxe and higher rentals.

As you go through the Rental Sale interview, TurboTax will ask you to confirm prior depreciation. The amount of prior depreciation will be shown. It should not be 0.

Depreciation expense is an item that landlords may not know about and the fact that when you sell your rental, you have to claim all the previous years’ depreciation expense. This is called
Depreciation Recapture and it's taxed in the year of sale. You may have to pay 25% on your depreciation recapture. See IRS Publication 544 Chapter 3 Depreciation Recapture, page 27.

In TurboTax, you have to indicate you sold the rental property in both the Property Profile section and the Assets/Depreciation section of the program. You will be prompted to enter sales information during the interview in the Assets/Depreciation section of TurboTax. Each asset needs to be sold and assigned a portion of the sales proceeds.

Please see: I sold my rental property. How do I report that?
Please see Critter-3's previously posted answer on how to allocate the gross rental sales price to the sale of each rental asset. Click here.

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pacergeneAuthor

Thank you for the advice. Will definitely upgrade to premiere. Also, the bits about the depreciation recapture upon sales is helpful. I read about it, but your explanation is so much more clear.

Does TurboTax Premiere also deal with the 2 out of 5 rule as well, where I lived in the property as main residence for 2 of the past 5 years, thus exempt from tax on the profit. I understand the depreciation recapture still apply.

DianeW777

Yes, TurboTax can handle that. A portion of the gain will be taxable due to rental use days and depreciation expense.

Say 'No' to 'Special Handling'. TurboTax will stop the depreciation at the appropriate month.
When you get to the 'Home Sale' screen answer 'Yes'.
Answer 'No' it was not a separate dwelling
Answer 'Yes' to 'Do you want to report the sale of this asset on the Home Sale Worksheet for your home sold?'
Continue to answer the questions about sales price and sales expenses, and Time lived in the home
Answer the number of days it was used for rental purposes
Complete this for each asset that is part of the rental property taking note of all depreciation and cost basis for each asset (if there are more than just the home and land).
See the images below to get started.