Welcome back! Ask questions, get answers, and join our large community of tax professionals.
Showing results for 
Search instead for 
Did you mean: 

Sale of residence converted to a rental--proper forms completion?

Level 4

I have a client that bought a new house in 2020, and rented their old house, which they had lived in for 10 years, for 11 months, then sold that rental in August 2021. As the rental was their primary residence for more than two of the last five years it qualifies for the exclusion.

But I can't get ProSeries to treat it that way. The program appears to be saying the rental period is disqualifying use and it is allocating gain to the rental period--too much I believe. Since a rental conversion following the residence period is not disqualifying it shouldn't be calculating any gain--but it is. Some of the entries on the Home Sale worksheet are auto populated from other entries on other schedules and I can't change them without over riding--which I don't want to do.

I disposed of the respective assets from the Asset Entry sheets by indicating the sale date and allocated sales price and expenses of sale and double-clicked the "link to home sale" box. All the numbers transferred to the home sale worksheet. I wonder if the problem is the acquisition date of the properties as I entered the date they converted it to a rental, rather than the original date they bought it as a residence.

I wonder if the best way to handle this is to enter 2021's income and expenses and just check the box on the Sch E worksheet to indicate the entire activity was disposed in 2021, mark the assets as sold, but with a zero sales price (or an adjusted price just to arrive at a zero gain) and then complete the home sale forms as if it had never been a rental.

What is the best way to make these entries?

0 Cheers