This article will help you enter a sale of home under a variety of circumstances and understand where the sale gets reported. Follow the steps for your client's situation below.
Sale of home with no depreciation or business use
- Go to Screen 17, Dispositions
- Enter the sale information in the grid:
- Description of Property
- Date Acquired
- Date Sold
- Sales Price
- Cost or Basis
- Expense of Sale (if applicable)
- Scroll down to the Sale of Home section
- Check the box labeled Sale of home (MANDATORY to compute exclusion)
- Check the 2 year use test met (full exclusion) box
Sale of home with reduced exclusion
- Go to Screen 17, Dispositions
- Enter the sale information in the grid:
- Description of Property
- Date Acquired
- Date Sold
- Sales Price
- Cost or Basis
- Expense of Sale (if applicable)
- Scroll down to the Sale of Home section
- Check the box labeled Sale of Home (MANDATORY to compute exclusion)
- Check the box Sale due to change in health, employment or unforeseen circumstances
- This box must be checked to calculate the reduced exclusion. For more information, see IRS Publication 523.
- Enter the number of days the taxpayer used the property as a main home in Days Used as Main Home
- Enter the Days Property Owned
- Under Business Use, enter the Number of nonqualified use days after December 31, 2008, if any. Nonqualified use typically includes any time the home wasn't used as a principal residence.
Sale of home with business use
IRS regulations indicate that if the residential and non-residential sections are within the same dwelling unit (such as an office in the home), and no depreciation is claimed, Reg. 1.121-1(e)(1) doesn't apply.
If Reg. 1.121-1(e)(1) doesn’t apply, you’ll need to enter the sale as two separate transactions:
- Divide the sales price, selling expenses, cost basis, and maximum exclusion between the part of the home used for personal purposes and the part used for business or rental.
- Go to Screen 17, Dispositions.
- Create a property for the personal part of the home:
- Enter the sale details for the personal part.
- Under the Sale of Home section, check the box for Sale of Home.
- Enter the amount of exclusion allocated in Exclusion (-1 to recognize full gain)[O].
- Create a second property for the business/rental part of the home:
- Enter the sale details for the personal section.
- Scroll down to the Form 4797 section.
- Enter the amount of Depreciation allowed (-1 if none, triggers 4797).
- Under the Sale of Home section, check the box for Sale of Home.
- Check the box for Business use in year of sale.
- Enter the amount of Depreciation allowed after May 6, 1997.
- Enter the amount of exclusion allocated in Exclusion (-1 to recognize full gain)[O].
If Reg. 1.121-1(e)(1) applies to your client, follow the steps for a Sale of home with no depreciation or business use, above.