Sale of Home Allowable Depreciation Need Advice

[me-carney]

Proseries Basic

Sale of Home - used as primary residence then rented. Lived in home for 2 of the 5 years prior to sale. Got a 1099-S so Schedule D will be filed. I recaptured the allowable depreciation and entered it on the home adjusted  basis sheet as decrease to basis. After decreasing basis, the exclusion is still met. Do I also need to report on Form 4727? When I entered data in that form, it created a gain on Schedule D and didn't take into consideration the exclusion. I think since Schedule D will be filed, there is no reason to file form 4798 but would like your expertise to be sure. Thanks.

[sjrcpa]

No Form 4797 needed.

Gain to the extent of prior depreciation is taxable even when they otherwise qualify for the $250K/$500K exclusion.

[TaxGuyBill]

If it was a rental when it was sold, it should be on Form 4797.  But ProSeries is not set to do that, so it forces you to incorrectly use 8949/Schedule D.

[me-carney]

Any way to force the 4797 or do I file it the way Proseries does it? 

[me-carney]

Thanks for your response. The house was sold for $200,000 (there were costs that lessened amount realized) and depreciation was $12k. This was not taken on the rental but is the allowable depreciation. House was bought for $75k in the early 80s. Are you saying the12k should be taxed? The gain is below the 250k exclusion even if I added the 12k to the 200k. I am not sure I understand exactly what you are saying. 

[TaxGuyBill]

Yes, the $12,000 will be taxed.  You should look into Form 3115 to 'catch up' on the missed depreciation.

I would probably just leave it on 8949/Schedule D, even though it is wrong.   The end tax result will be the same either way.

[taxes96786]

Depreciation is not a decrease the basis at sale. The depreciation that was allowed has to be reported, on the sale, as the amount of depreciation taken, whether or not you actually took it. You may have to make adjustments to arrive at the correct figures for the sale.

When you sell the property, you'll owe depreciation recapture tax.

[me-carney]

Thanks. I found the way to enter the data by putting the depreciation on the home sale worksheet in Section IV. It then shows the 12K gain on the Schedule D and 8949.

[me-carney]

Thanks for your response. I had to recapture the allowable depreciation. It does decrease the adjusted basis based on this IRS paragraph. 

"Generally, the law allows an annual depreciation deduction on your rental property and you must reduce the basis of the property by the amount of your depreciation deductions. If you don't claim some or all of the depreciation deductions allowable under the law, you must still reduce the basis of the property by the amount allowable before determining your gain on the sale of the property."

Are you referencing something else?

[me-carney]

Oh and it shows on line 12 of Unrecaptured Section 1250 Gain Worksheet stating it is the unrecaptured 1250 not entered on the 4757. That took a bit to figure out the correct place to enter the data. Thanks for your help.