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February 14, 2025
Question

How do I report the income on the sale of a home that was my primary residence for many years, but that was a rental the last 3 years?

  • February 14, 2025
  • 1 reply
  • 0 views
I believe that since I lived in it 2 out of the last 5 years, that I should qualify for the primary residence exemption on capital gains. However, TurboTax is treating it as a rental property.

    1 reply

    KrisD15
    February 14, 2025

    Yes, if you meet the two out of the last five years, you can take advantage of that exclusion HOWEVER since it was a rental, any depreciation you took is subject to "Depreciation Recapture". 

     

    Depreciation Recapture is when the depreciation taken (or could have been take) is regained when you sell. 

    For example, you purchased a home for 100,000 and the depreciate over three years is 11,000. Then you sell for 150,000. The capital gain of 50,000 may be excluded, but you will have 11,000 depreciation recapture which is reported as ordinary income and taxed at your tax rate. 

     

    Does not matter if you claimed that depreciation or not, it's recaptured as if you took it. 

    IRS link 

     

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