Sale of a rental property at a profit that used to be a primary residence

Forum|Forum|4 years ago
February 17, 2022
2 replies
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My wife and I bought a house in December 2015 for $415,000. We converted it to a rental property on April 1, 2019 and sold it for $650,000 in May 2021. We meet the ownership and residency requirements to take the exemption on the capital gains, but I can't figure out how to make TurboTax ignore the gain on the sale. I would greatly appreciate any advice.

Thanks!

ZoltanB45

I would record the sale twice. Turbo Tax will be asking about the rental activity and you will have to say that you sold the property. Enter the sale price as the beginning basis when you began renting it. That way you are still have a gain equal to the accumulated depreciation.

Then record the sale of home where you would qualify for the section 121 exclusion.

Carl11_2

Employee

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 2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.

Beezus

Please give us an update if you are able to successfully complete this in a way you feel like is correct. I am in the same situation (almost exactly) and I have been struggling to find answers/help. I paid for the turbo tax support and they were not able to help. It doesnt seem like it should be a very challenging tax situation but I am not able to get the situation into turbo tax with accurate answers...or even inaccurate answers haha.