What specific IRS forms do I need to fill out to report the sale of a principal residence that was formerly a rental property?

Reporting the Sale of a Rental Property Converted to a Principal Residence

When you sell a home that was once a rental property and later became your principal residence, you must report the transaction to the IRS using specific forms. Here's a breakdown of the forms you'll need:

1. Form 8949, Sales and Other Dispositions of Capital Assets

- This form is used to report the sale or exchange of capital assets not reported on another form or schedule. You'll need to list your home sale here, including the dates of purchase and sale, the sales price, and the cost basis.

2. Schedule D (Form 1040), Capital Gains and Losses

- Schedule D is used in conjunction with Form 8949 to report capital gains and losses. The totals from Form 8949 are transferred to Schedule D, where you'll calculate the overall capital gain or loss from the sale of your property.

3. Form 4797, Sales of Business Property

- If you've used your home for business or rental purposes, you may need to report the part of the gain related to the business use on Form 4797. This form is used to report the sale of property used in a trade or business and to calculate any gain or loss.

4. Form 4562, Depreciation and Amortization (Including Information on Listed Property)

- If you've claimed depreciation on the property while it was used as a rental, you'll need to use Form 4562 to report depreciation up to the date of conversion to personal use, and to calculate any depreciation recapture upon sale.

5. Form 5405, Repayment of the First-Time Homebuyer Credit

- If you claimed the first-time homebuyer credit for the property in a previous year, you might need to repay the credit using Form 5405, depending on when you purchased the home and the length of time you lived in it as your principal residence.

6. Form 6252, Installment Sale Income

- If you sold the property under an installment sale agreement, you would use Form 6252 to report installment sale income.

7. Form 8828, Recapture of Federal Mortgage Subsidy

- If you financed the home with a federally subsidized program and are selling the home within nine years of purchase, you may need to recapture some of the subsidy with Form 8828.

8. Form 2119, Sale of Your Home (for sales before 1998)

- This form is only relevant for homes sold before 1998, but it's worth mentioning in case you're dealing with older transactions.

Please note that the specific forms required can vary based on individual circumstances, such as whether you're subject to the Net Investment Income Tax or if you're taking advantage of the section 121 exclusion. Always refer to the latest IRS publications and forms for the most current information.

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Sources:

Publication 523 (2023), Selling Your Home | Internal Revenue Service 2024-03-12

Capital Gains, Losses, and Sale of Home - Internal Revenue Service 2024-03-12

Publication 527 (2023), Residential Rental Property 2024-03-14

Questions and Answers on the Net Investment Income Tax 2024-03-11

Sale of Residence - Real Estate Tax Tips | Internal Revenue Service 2024-03-11

Publication 530 (2023), Tax Information for Homeowners 2024-03-12

Publication 537 (2023), Installment Sales | Internal Revenue Service 2024-03-14

Publication 544 (2023), Sales and Other Dispositions of Assets 2024-03-11

26 U.S. Code § 121 - Exclusion of gain from sale of principal residence 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter B - Computation of Taxable Income 26 U.S. Code Part III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME 2023-12-11

26 U.S. Code § 36 - First-time homebuyer credit 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter A - Determination of Tax Liability 26 U.S. Code Part IV - CREDITS AGAINST TAX 2023-12-11

Internal Revenue Bulletin: 2023-40 2023-10-01

Maryland Code, Tax-Property § 2-218 2021-12-31