How do you claim capital gains exclusion from sale of rental property under the Military Families Tax Relief Act?

If you are a member of the Uniformed Services or the Foreign Service, or an employee of the intelligence community in the Unites States, you may choose to suspend the 5-year test period for ownership and use if you are on qualified official extended duty. This means you may be able to meet the 2-year residence test even if, because of your service, you didn’t actually live in your home for at least the 2 years during the 5-year period ending on the date of sale.

Example.

John bought and moved into a home in 2007. He lived in it as his main home for 2½ years. For the next 6 years, he didn’t live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2015. To meet the use test, John chooses to suspend the 5-year test period for the 6 years he was on qualified official extended duty. This means he can disregard those 6 years. Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period.

Qualified extended duty.   You are on qualified extended duty if:

• You are called or ordered to active duty for an indefinite period, or for a definite period of more than 90 days.
• You are serving at a duty station at least 50 miles from your main home, or you are living in government quarters under government orders.
• You are one of the following:

1. A member of the armed forces (Army, Navy, Air Force, Marine Corps, Coast Guard);
2. A member of the commissioned corps of National Oceanic and Atmospheric Administration (NOAA) or the Public Health Service;
3. A Foreign Service chief of mission, ambassador-at-large, or officer;
4. A member of the Senior Foreign Service or the Foreign Service personnel; or
5. An employee, enrolled volunteer, or enrolled volunteer leader of the Peace Corps serving outside the United States.
   Period of suspension.   The period of suspension can’t last more than 10 years. Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. You can’t suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.
   

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Where (or how) in the turbo tax software can we enter information about the sale of our home that was used as a rental property for the last 7.5 years but that is eligible for the “military extension” of the capital gains exclusion? (We lived in the home for more than 2.5 of the past 10 consecutive years and were away from the home only while under travel orders.) Do we enter the sale and claim the military extension under the “sale of RENTAL property” section? If not, can you provide us with clear instructions on how to do this using your software? Thank you.

Do I qualify for this military families tax relief act? To clarify, I mean the capital gains exclusion. I am aware about the 2 years out of the 5 for non-mil members.

background: Bought a home and moved into it in Dec 2006 and moved out in August of 2010 because of military orders. The home was rented out from March 2011 until March 2021. We had the tenants move out in order to sell it and it was sold end of May 2021.

We purchased (but have not paid for it yet) live premier and our tax expert had no idea about this act so I agree with those who say don't pay for live as it is not a guarantee that they will know about this. Our tax expert did at least research this and provided info on how to apply the military clause but I am lost as to how to do this. On my screen, my options are: Rental Properties and Royalties (Sch E), Sale of Business Property, and Sale of Home (gain or loss). Which of these is the section that I am supposed to be editing? Any info would be greatly appreciated.

As you know, your "2 of last 5" can be extended to a maximum of "2 of last 15". But to call it an extension is actually incorrect. What it is, is a "suspension" of the 5-year count. say you lived in the property for let's say, 2 yaers and then vacated the property under military orders and were gone for 5 years.  During that 5 years you rented it out.

Then you sold the property 5 or more years of it being a rental. For the sole purpose of the capital gains tax exclusion, that 5 years "doesn't exist", because they were suspended. So they don't get counted. For tax purposes and to qualify for the "2 of last 5" capital gains tax exemption, treat it "as if" you sold it within 3 years after you vacated it. You'll be fine, because you have military orders to back you up. Besides, you've already indicated on your tax return that you were military for all these years.