Sec 121 Exclusion for investment property used previously as main home?

Forum|Forum|4 years ago
April 13, 2022
1 reply
17 views

A client sold an investment property in 2021. There is a moderate gain.

Come to find out, he lived in the property from 2014 until 2018. Theoretically this should qualify him for the main home exclusion or at least a partial exclusion?

This was a rental after he moved out so it is an asset on schedule E. So normally I would just send it to 4797 but I have no idea how to split that with the home sale worksheet which is where I would normally generate the exclusion.

Is there any way to do this?

ProSeries Professional

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TaxGuyBill

Level 15

Count the days for the last 5 years ... did the taxpayer use it as their Principal Residence for 2 years (730 days)?

If so, the way ProSeries wants you to do it is to 'link' the Asset Entry Worksheet to the Home Sale Worksheet, and report the sale using the Home Sale worksheet.

ProSeries will incorrectly put the sale on 8949/Schedule D rather than 4797, but the end tax result should be the same. If you want it to properly show up on the 4797, you could probably enter the exclusion in the worksheet on the top of the 4797 (enter it as sale of property, showing a loss of the exclusion amount).

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ejdtaxmanAuthor

Level 6

The end result is far from the same. It is costing him an extra 3k on the federal alone. Part of the reason seems to be that it affects his accumulated losses but that is only a 5k difference. I can't trace the remainder but I will try later when I am a little more focused.

If you have any additional suggestions please let me know.

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TaxGuyBill

Level 15

I'm wondering if you are entering something wrong. As far as I can think of, it will be the same.

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