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Rental property sold in '18 with a twist

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    Rental property sold in '18 with a twist

    Property was purchased by owner 11 years ago. He lived in it for first 6 1/2 years, then was given extended tour orders. He rented the property for the last 4 1/2 years before sale. Despite the possibility of being exempt from the 2 of the last 5 years test due to required move, I am being told it needs to be entered as the sale of rental property, not the sale of a home. Client doesn't want to believe me, but I think that's because the sale as a rental carries larger gains (gain from + dep'n recapture.) Anything I'm not seeing here? Thank you in advance for any feedback.

    #2
    If it was a rental in 2018, it is sold as rental on Form 4797.

    The tax is the same.

    Assuming the taxpayer moved due to Qualified Official Exended Duty, he qualifies for the exclusion. If the gain is less than $250,000/$500,000, the only tax will be on the depreciation. Again, that tax would be the same regardless if it was reported as a rental on Form 4797 or Form 8949 as a personal home.

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      #3
      See page 6-21 of The Tax Book under heading Official Duty Election

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        #4
        no matter how sale is reported the depreciation is ordinary income on tax return. if sale is personal residence it is used to reduce basis

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