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04-04-2017 03:53 AM
I purchased a home in 02/2011 as my primary home. Lived there for 3 years 5 months (from 02/2011 to 07/2014) as primary home. Then I rented it out from 08/2014 to 06/2016. Put the house on market after rental terminal and sold the house with a gain in 07/2016. During the rental period, I took 16K for depreciation. I met the 2 out of last 5 years primary residence exclusion and there was no disqualified use after 2008 since the house was my primary residence from day one since moved in until I converted it to rental.
My question is, how to enter the Section 121 exclusion in H&R Block software? I tried but it always prorate my capital gain (proceeds - basis + depreciation capital recpature). I am only expecting the 16K depreciation recpature as capital gain for tax purpose.
Do I need to open up form 4797 and enter a loss equivalent to the proceeds - basis as described in https://www.irs.gov/instructions/i4797/ch01.html (relevant section shown below)?
=== From IRS 4797 instruction =====
Exclusion of gain on sale of home used for business. You may be able to exclude part or all of the gain figured on Form 4797 if the property sold was used for business and was also owned and used as your principal residence during the 5-year period ending on the date of the sale. During that 5-year period, you must have owned and used the property as your personal residence for 2 or more years. However, the exclusion may not apply to the part of the gain that is allocated to any period after December 31, 2008, during which the property was not used as your principal residence.
If the property was held more than 1 year after you converted it to business use, complete Part III to figure the amount of the gain. Do not take the exclusion into account when figuring the gain on line 24. If line 22 includes depreciation for periods after May 6, 1997, you cannot exclude gain to the extent of that depreciation. On Part I, line 2, write “Section 121 exclusion,” and enter the amount of the exclusion as a (loss) in column (g).