Reporting the sale of home used as a rental property (Section 121 exclusion)

This article will assist you with reporting the sale of a home used as a rental property involving nonqualified use according to IRC Section 121. You can report this asset on the Depreciation screen of ProConnect Tax.

Refer to IRS Topic No. 701 for information about the qualifications for this exclusion.

Follow these steps if the asset is already entered on the Depreciation screen:

1. Go to the Input Return tab.
2. From the left of the screen, select Deductions and choose Depreciation.
3. Select the blue Details button for the applicable asset in the Quick Entry grid.
4. From the top of the screen, select Disposition.
5. Under the General Disposition Information section, enter the following applicable fields:
   • Date sold, disposed, or retired (MANDATORY).
   • Basis adjustment (land, etc.) [Adjust])
   • Expenses of sale or exchange
6. Scroll down to the Sale of Asset (4797/6252) section.
7. Enter the Sales price (-1=none).
8. Scroll down to the Sale of Home section.
9. Check the box labeled Sale of home (MANDATORY to compute exclusion).
10. Check the box labeled 2-year use test met (full exclusion), if applicable.
    • Only check this box if the taxpayer owned and used the home as a main home for 2 or more years during the 5-year period ending on the date of the sale or exchange of the property. 
    • An entry in this field tells the program that the taxpayer qualifies for the full $250,000 exclusion ($500,000 is MFJ).
11. Enter the Number of nonqualified use days after December 31, 2008, if applicable.
    • The program will use this entry to determine the amount of gain allocated to nonqualified use. See Pub. 523 for details on what constitutes non-use.

Follow these steps if you haven't entered the asset on the Depreciation screen:

1. Go to the Input Return tab.
2. From the left of the screen, select Income and choose Dispositions (Sch D, etc.).
3. Select Schedule D/4797/etc. from the dropdown menu.
4. Select the blue Details button for the applicable asset in the Quick Entry grid.
5. Under the Dispositions (Schedule D, 4797, etc.) section, complete the applicable fields with information about this sale:
   • Description of property
   • Date acquired (negative date=various)
   • Date sold (negative date=various)
   • Cost or other basis (do not reduce by depreciation)
   • Expenses of sale or exchange
6. From the top of the screen, click the three dots and choose Sale of Asset 4797, 6252.
7. Under the Form 4797 section, complete any applicable fields:
   • Depreciation allowed (-1=none, triggers 4797)
     • This is any prior depreciation.
   • Recapture amount (if not section 1245)
   • Blank = 1245, 1=1250, 2=1252, 3=1254, 4=1255
     • Enter a 1 in this field, if applicable.
8. From the top of the screen, click the three dots and choose Sale of Home.
9. Check the box labeled Sale of home (MANDATORY to compute exclusion).
10. Check the box labeled 2-year use test met (full exclusion), if applicable.
    • Only check this box if the taxpayer owned and used the home as a main home for 2 or more years during the 5-year period ending on the date of the sale or exchange of the property. 
    • An entry in this field tells the program that the taxpayer qualifies for the full $250,000 exclusion ($500,000 is MFJ).
11. Check the box labeled Business use in year of sale, if applicable.
12. Enter the Number of nonqualified use days after December 31, 2008, if applicable.
    • The program will use this entry to determine the amount of gain allocated to nonqualified use. See Pub. 523 for details on what constitutes non-use.