skip navigation

Search Help
Navigation Help

Tax Map Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

International
Tax Topic Index

Affordable Care Act
Tax Topic Index

FAQs
Forms
Publications
Tax Topics

Comments
About Tax Map

IRS.gov Website

Frequently Asked Tax Questions

Sale or Trade of Business, Depreciation, Rentals - Sales, Trades, Exchanges

  1. What form(s) do we need to fill out to report the sale of rental property?
  2. What forms do we file to report a loss on the sale of a rental property?
  3. I have heard that I can sell my rental property and use the proceeds to purchase rental property of equal or greater value and the transaction is viewed just like an exchange in that the tax is deferred until the new property is sold. Is this true?
  4. Can we move into our rental property, live there as our main home for two years, and sell it without having to pay capital gains tax?
  5. We sold a rental property last year and used the like-kind exchange rules under section 1031 of the Internal Revenue Code to purchase a replacement property and defer the gain of the rental property sold. How do I report this transaction on my tax return?

Rev. date: 12/18/2014

What form(s) do we need to fill out to report the sale of rental property?

Report the gain or loss on the sale of rental property on Form 4797 (.pdf), Sales of Business Property. Individuals typically use Schedule D (Form 1040) (.pdf), Capital Gains and Losses, together with Form 4797.
For further information, refer to:

Rev. date: 12/18/2014

What forms do we file to report a loss on the sale of a rental property?

Rental property is income-producing property and as such, considered business property. Report the loss on the sale of rental property on Form 4797 (.pdf), Sales of Business Property. Normally, you transfer the loss as ordinary loss to line 14 of Form 1040 (.pdf), U.S. Individual Income Tax Return.

Rev. date: 12/18/2014

I have heard that I can sell my rental property and use the proceeds to purchase rental property of equal or greater value and the transaction is viewed just like an exchange in that the tax is deferred until the new property is sold. Is this true?

Yes. What you have heard about is a transaction called a like-kind exchange. A like-kind exchange, when properly executed, can postpone the recognition of gain (and resulting current tax) essentially by shifting the basis of property sold to like-kind replacement property.
The basis of the property that you acquire in a like-kind exchange is generally the same as the basis of the property that you transferred. However, if you transfer money or other property (not like-kind) in addition to like-kind property, your basis in the property acquired is the basis of the property given up, increased by the amount of money or other property transferred.  
To successfully defer gain in a like-kind exchange, you must follow certain rules. For example, when you sell your rental property, you cannot take actual or constructive receipt of the sale proceeds. You avoid actual or constructive receipt of the proceeds if you comply with one of the safe harbors (procedures) set forth in the Income Tax Regulations or certain other publications of the Internal Revenue Service.

Rev. date: 12/18/2014

Can we move into our rental property, live there as our main home for two years, and sell it without having to pay capital gains tax?

You may be able to exclude much of the gain from the sale of your main home that you also used for business or to produce rental income if you meet the ownership and use tests. However, you may not exclude gain from the sale or exchange of your main home if it is allocable to periods of non-qualified use as detailed in Publication 523, Selling Your Home.
In addition, if you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you may not exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation deduction allowed (actually deducted) was less than the amount allowable (legally expected to be deducted), you may limit the recognized gain attributable to depreciation to the amount of the depreciation allowed. For tax years beginning in 2013 or later, a simplified method of computing the deduction for the business use of a home that sets depreciation to zero may apply. Please refer to Simplified Option for Home Office Deduction for details.
Reporting the Sale of Your Home
IfThen
You meet the ownership and use tests and there is no business or rental use in the year of the saleYou should report the gain, exclusion and depreciation-related gain that you cannot exclude on Form 8949 (.pdf), Sales and other Dispositions of Capital Assets, and Schedule D (Form 1040) (.pdf), Capital Gains and Losses. For more information, refer to Publication 523.
You meet the ownership and use tests but there is business or rental use in the year of saleYou should report the sale of the business or rental part on Form 4797 (.pdf) , Sales of Business Property. Form 4797 takes the business or rental part of the gain, the exclusion and depreciation-related gain that you cannot exclude into account.
The part of your property used for business or rental use is within your home, such as a home office for a businessYou do not need to allocate gain on the sale of the property between the business or rental part of the property and the part used as a home. In addition, you do not need to report the sale of the business or rental part on Form 4797. This is true whether or not you were entitled to claim any depreciation. However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997.
 

Rev. date: 12/18/2014

We sold a rental property last year and used the like-kind exchange rules under section 1031 of the Internal Revenue Code to purchase a replacement property and defer the gain of the rental property sold. How do I report this transaction on my tax return?

Report the exchange of like-kind property on Form 8824 (.pdf), Like-Kind Exchanges. The Instructions for Form 8824 (.pdf) explain how to report the details of the exchange. Even if you recognize no gain or loss, you must report the exchange.
If you received money or other property (not like-kind) as part of the exchange, you must recognize gain to the extent of the amount of money or the value of other property you received, but you do not recognize a loss. You must report recognized gain on Form 4797 (.pdf), Sales of Business Property, and Schedule D (Form 1040) (.pdf), Capital Gains and Losses. Refer to the detailed section on qualifying like-kind exchanges in Chapter 1, Gain or Loss, of Publication 544, Sales and Other Dispositions of Assets.