1040-US: Reporting the sale of a home used partly for business or rental

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Question

How do I report the sale of a home used partly for business or rental?

Answer

Note: Review IRS Publications 523 and 587 for guidelines on reporting the business portion of a home separately.

There is no need to allocate the basis of the property and the amount realized between the business and home portion if the home sold was used partly for business or rental during the year and either of the following conditions are met:

If either of these conditions are met, the business and rental portion is not reported on Form 4797. The entire gain is reported on Schedule D. All of the sale information should be entered in Screen Home, located in the Personal Sale folder, and nothing needs to be entered in Screen Sale. UltraTax CS treats assets coded as Office in home in the Asset tab as being within the home; therefore, 100 percent of the sale information will be transferred to Screen Home in the PerSale folder.

If neither of these conditions is met, the sale of the business or rental part is reported on Form 4797. Only the sale of the home portion should be entered in Screen Home. Use Screen Sale to report the business or rental portion. If the business or rental portion qualifies for any of the section 121 exclusion, divide the maximum exclusion between the business and personal portions of the sale and enter the home portion in the Maximum Exclusion Amount Force field in Screen Home. Refer to IRS Publication 523 for further information.

To properly report the business or rental portion of the sale on Form 4797, perform the following steps.

  1. Complete a unit of Screen Sale in the Personal Sale folder using the business or rental amounts for selling price, selling expenses, and basis. Enter 3 in the Treatment field to report the sale on Form 4797 Part III. Do not enter X in the Section 1250 property field unless all of the depreciation was for periods after May 6, 1997. Do not take any exclusion into account.
  2. Add a new unit of Screen Sale with a description of "Section 121 exclusion" and enter 1 in the Treatment field to report on Part 1 of the 4797. Enter the date of sale in the Date sold field and the amount of exclusion applicable to the business or rental portion in the Cost or other basis field.
  3. If there is gain reported due to depreciation for periods after May 6, 1997, adjust line 3 of the Unrecaptured Section 1250 Worksheet by this amount. Override the amount on the form to make the adjustment.

Related topic: Business and capital asset sale information FAQs (1040)

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