Main home conv to rental then sold a year later

[kamckinley]

Hi All,

I have a client who converted her main home to a rental then sold it a year later. I understand that the depreciation taken while the house was rented has to be recaptured, but I'm not sure if she qualifies for the entire exclusion or if I need to calculate a reduced exclusion.

Here is some more info on this situation:

Client purchased home 20+ years ago for $75,000
Client lived in the home as her main residence until June 2013.
Client rented the home from July 2013 through July 2014.
Sold home in December 2014 for $115,000.

First question, how do I stop the depreciation when the home was no longer being rented. Just enter sold date on the input screen for Sch E as 7/1/14?

Second question, does she get the full exclusion amount? According to Pub 523,

How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if the following is true:

- You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
- You did not acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
- You did not claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.

All of these are true for this client, but I thought I read somewhere that the exclusion is reduced for non-qualified use.

If she qualifies for the full home sale exclusion, then I just need to recapture the depreciation, correct?

If she doesn't qualify for the full home sale exclusion, is Form 4797 needed to calculate the gain in this situation?

Thanks for any help. My brain and eyes are so tired, I'm sure the answer is right in front of me and I just can't see it.

Kristine

[TaxGuyBill]

1. Yes, just enter the disposition date and your software should stop the depreciation at the proper time.

2. Yes, they qualify for the full exclusion. There is no "non-qualified use" because they did not move back into the home after it was rented. The only tax will be from the depreciation.

[kamckinley]

Thank you! I thought the time the house was rented might be considered "nonqualified use", thus my confusion.

[taxmom34]

and, depreciation taken reduces the basis. no need for form 4797.

[sandigi]

no depreciation recapture?

and, depreciation taken reduces the basis. no need for form 4797.

I thought there would be form 4797 to recapture the depreciaten taken while it was a rental?