To qualify for the main home exclusion, the IRS states “If you used and owned the property as your principal residence for an aggregated 2 years out of the 5-year period ending on the date of sale, you have met the ownership and use tests for the exclusion.”
You may read more about qualifications for the Maximum/Partial Exclusion, here.
When reporting a property that has been used as both a rental and a primary residence, you will need to include a Form 4797 and a Sale of Main Home Worksheet on your tax return.
How do I report this within the program?
To report the sale of the Rental portion of your property, please follow this path:
- Federal Section
- Income
- Less Common Income
- Sale of Business Property 4797
You will need to make two entries: One for the land that cannot be depreciated (Part I property) and one for the dwelling that was depreciated (Part III Section 1250 property)
To report the sale of the Primary Residence portion of your property
- Federal Section
- Income
- Investments
- Sale of Main Home worksheet
What about Depreciation Recapture?
If over the life of your residential rental property, you claimed depreciation, you will need to recapture that deduction on the Form 4797. Even if you did not take the depreciation deduction the IRS still requires you to report the amount that could have been taken. To report this within the program, please follow this path:
- Federal Section
- Income
- Less Common Income
- Sale of business property (Form 4797)
- Other Data
Also, if the property was held for longer than a year, the property type will be indicated as “Part III – Section 1250”.
You may read more about Depreciation Recapture, here.