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sale of rental that was primary residence first

Bill50
Level 3

client owned house for 10 years.  started renting it on 7/1/17 and sold it on 6/30/20 for a substantial profit (180k v 93K basis).  From everything I can find, other than depreciation recapture, the gain should be exempt as "sale of primary residence."  However, Proseries is completing Part IV of the "Home Sale Worksheet" and only exempting 80% of gain (1000 days rented v 5000 days owned). IRS worksheet states you would complete Part IV only if the "non-use" days were after 2008, during the 5-year period and before the time when the taxpayer used the property as a main home.  This is not the case.  Any ideas on why PS is saying it is only partially exempt?

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6 Replies 6
BobKamman
Level 14

This doesn't answer your question, but I would like to know what happened in 2017.  They moved out on June 30 and tenants moved in on July 1?  Where was their primary home, the first half of the year?  For example, what address did they use on their 2016 return?

Bill50
Level 3

it was her primary residence up to and including 6/30/17.  The client was keenly aware of the dates and made sure to comply with the requirements. Tenants did not actually move in until later in the first week of July.

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TaxGuyBill
Level 14

As Bob pointed out, if the home was not their Principal Residence on 6/30/2017, it seems they don't meet the 2-out-of-5 year rule.

In answer to your question, Line 19a of the Home Sale Worksheet should be "No" (assuming they did not use it again as their Principal Residence AFTER they had rented it).

Bill50
Level 3

Thanks for your response.  It is always good to get other ideas on these issues.  However, I don't agree with the answer to line 19a being "No."  Yes, that solves the problem but that is not the correct answer.  19a asks "Was the property not used as the taxpayer's principal residence for any period after 2008?"  It was not used as her principal residence for the period 7/1/17 to 6/30/20 so the answer to line 19a has to be "Yes."

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TaxGuyBill
Level 14

@Bill50 wrote:

19a asks "Was the property not used as the taxpayer's principal residence for any period after 2008?"  It was not used as her principal residence for the period 7/1/17 to 6/30/20 so the answer to line 19a has to be "Yes."


Apparently the "Help" doesn't list the exceptions.

If you want to answer "yes", fine.  But then Line 19b is ZERO.  Days AFTER the last time it was the Principal Residence are NOT "Nonqualified Use" days.

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Bill50
Level 3

the PS "Sale of Home" worksheet, Part III, Section A does not quite match up with the IRS's Sale of Home worksheet.

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