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:

1. 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.
2. Go to Screen 17, Dispositions.
3. Create a property for the personal part of the home:
   1. Enter the sale details for the personal part.
   2. Under the Sale of Home section, check the box for Sale of Home.
   3. Enter the amount of exclusion allocated in Exclusion (-1 to recognize full gain)[O].
4. Create a second property for the business/rental part of the home:
   1. Enter the sale details for the personal section.
   2. Scroll down to the Form 4797 section.
   3. Enter the amount of Depreciation allowed (-1 if none, triggers 4797).
   4. Under the Sale of Home section, check the box for Sale of Home.
   5. Check the box for Business use in year of sale.
   6. Enter the amount of Depreciation allowed after May 6, 1997.
   7. 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.