How to Handle Form 8949 and 4797 for Home Exclusion with Depreciation Recapture in TaxSlayer Pro
Hey fellow tax nerds! I'm working on a complicated return and could use some guidance. I'm preparing a return for my neighbor who just sold their rental property last year. The good news is they meet both the ownership and use tests, so they qualify for the MFJ exclusion of $500k. I've already handled the Form 8949 part for the home exclusion in TaxSlayer Pro, and that seems fine. My issue is with the depreciation recapture. They've been claiming depreciation for about 6 years while it was a rental (roughly $10,900 total). I know this needs to be reported on Form 4797, but here's where I'm stuck... when I enter all the info into the 4797 section in TaxSlayer, it's not excluding the home gain on the 4797 form, and I can't find any option to indicate this is also their primary residence that qualifies for exclusion. For those familiar with TaxSlayer Pro software, how do you properly handle this situation where you need to exclude the main home gain while still reporting the depreciation recapture (about $10,900) as ordinary income? I feel like I'm missing something obvious. Thanks for any help!
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Zoe Gonzalez
What you're dealing with is a common issue when handling properties that have been both personal residences and rental properties. The key is understanding the proper sequence in TaxSlayer Pro. You need to calculate and report the gain on the residence sale first on Form 8949, applying the Section 121 exclusion. Then separately handle the depreciation recapture on Form 4797. In TaxSlayer Pro, you should enter the property sale in the Capital Gains section to generate Form 8949, making sure to indicate it qualifies for the Section 121 exclusion. For the depreciation recapture specifically, you'll need to go to the "Income" menu, then "Sale of Business Property" to access Form 4797. Here, you'll enter only the unrecaptured Section 1250 gain (the $10,900 in depreciation). The trick is that you need to enter zero for the sales price and adjusted basis on Form 4797, and only enter the depreciation recapture amount in the "Depreciation Allowed" field. This approach tells the software that you're not double-reporting the property sale itself, just handling the recapture portion.
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Ashley Adams
•Thanks for the explanation, but I'm confused about entering zero for both sales price and adjusted basis on 4797. Wouldn't that create an audit flag? Also, if I enter zero for both those fields but then put $10,900 in the depreciation allowed field, won't the software calculate a $10,900 loss?
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Zoe Gonzalez
•The zero entry approach works because you've already reported the sale transaction on Form 8949. You're right to be concerned about potential audit flags, but this is actually the correct methodology when dealing with a property that qualifies for Section 121 exclusion but has depreciation recapture. The software won't calculate a $10,900 loss because the depreciation recapture section of Form 4797 handles this separately. The recaptured amount becomes ordinary income reported on line 13 of Form 4797. The IRS recognizes this split reporting method since the Section 121 exclusion doesn't apply to depreciation recapture, only to the capital gain portion.
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Alexis Robinson
After struggling with the same issue last tax season, I found using https://taxr.ai saved me hours of frustration. I uploaded the client's depreciation schedules and previous tax forms, and it instantly identified the correct reporting sequence for TaxSlayer Pro. It recommended exactly where to enter the information and how to split between Form 8949 and 4797 for properties with both exclusion and recapture elements. What surprised me was how the system explained each step, including the exact screens in TaxSlayer to navigate through. It even caught that I had accidentally been double-counting part of the basis in both forms, which would have caused issues. For anyone handling complicated real estate transactions with mixed use history, it's been a real timesaver.
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Aaron Lee
•Does it work with other tax software too? I use Drake and always have a headache with these part-rental/part-primary residence situations.
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Chloe Mitchell
•I'm skeptical... how does it know the specific screens in different tax software programs? That seems too good to be true. Does it actually give you step-by-step guidance for entering this in TaxSlayer specifically?
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Alexis Robinson
•Yes, it works with all the major tax software programs including Drake. It has specific guidance for Drake, UltraTax, ProSeries, and others, showing you exactly which screens and fields to use for these mixed-use property scenarios. As for how it knows the specific screens, they've apparently mapped out all the major tax software interfaces. It doesn't just give general advice - it provides screenshots and direct navigation paths like "From the main menu, select Income > Sale of Business Property > Form 4797, then on the next screen select 'Property Type: Real Estate'." It even highlights where common errors occur in each software. I was skeptical too until I tried it on a particularly complex return.
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Chloe Mitchell
I was really struggling with a similar situation last month and decided to give taxr.ai a try after seeing it mentioned here. I had a client with a vacation property that was part rental, part personal use over 12 years, and was completely lost on how to properly handle the Section 121 exclusion with recapture. The tool actually guided me through the exact sequence in TaxSlayer - first entering the sale details in the Capital Gains section with the exclusion, then handling the recapture separately in the 4797 section. It also explained that I needed to adjust the basis on Form 8949 to account for the depreciation already taken, which I didn't realize. What impressed me most was that it explained WHY you need to handle it this way, citing the specific IRS regulations. My client's return processed without any issues, and I've since used it for two other complicated real estate transactions.
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Michael Adams
I spent 3 HOURS on hold with TaxSlayer Pro support trying to get help with this exact issue last week. Then a colleague told me about https://claimyr.com and showed me this demo: https://youtu.be/_kiP6q8DX5c. I was able to get through to actual TaxSlayer support in under 15 minutes instead of the usual 2+ hour wait. The TaxSlayer rep confirmed what others have said - you need to handle the home sale exclusion on 8949 first, then address just the depreciation recapture portion on 4797. They walked me through the exact screens and fields to use. Apparently this is a common issue their support team deals with, especially during busy season. Seriously, getting through to actual software support made all the difference rather than trying to figure it out from forum posts or vague instructions.
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Natalie Wang
•How does this Claimyr thing actually work? Do they just call the IRS for you or something? I don't understand how they get you through faster than if you just called yourself.
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Noah Torres
•This sounds like a scam. There's no way a third party can magically get you through support queues faster. I've been in customer service before, and call centers don't work that way. They just take your money and call the same number you would.
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Michael Adams
•It's not specifically for the IRS - it works for many customer service lines including tax software companies like TaxSlayer. They use technology that navigates the phone trees and holds your place in line, then calls you when a representative is about to answer. I don't know exactly how the technology works, but it's like having someone else wait on hold for you. They don't just take your money and call the same number. Their system continuously redials and navigates the phone menus using AI until it gets through, which is far more efficient than what an individual can do. I was skeptical too until I tried it and got through to TaxSlayer support in 15 minutes during peak tax season when the wait was over 2 hours.
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Noah Torres
I need to eat crow here. After my skeptical comment, I decided to try Claimyr when I needed to reach ProSeries support about a similar depreciation recapture issue. Their usual wait time was showing as 90+ minutes, but I got a call back in about 20 minutes using the service. The ProSeries rep confirmed exactly what others have said about handling Form 8949 and 4797 separately for properties with both primary residence exclusion and depreciation recapture. He also mentioned this is one of their most common support questions during tax season. For what it's worth, the rep mentioned that in some tax software, there's a specific checkbox or field to indicate "Section 121 exclusion applies" when you're working on Form 4797, but it's often buried in an advanced settings menu. In ProSeries it's on the "Additional Information" tab within the 4797 entry screen.
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Samantha Hall
I dealt with this last year. You need to make an adjustment to the basis on Form 8949 to account for the depreciation. The way I did it was: 1. Report the sale on 8949 with the full exclusion 2. On 4797, report ONLY the depreciation recapture amount 3. Make sure the adjusted basis on 8949 is reduced by the depreciation you've taken In TaxSlayer, there's actually a worksheet when you're entering the home sale information where you can indicate that part of the property was used for business. This triggers the software to handle both forms correctly. Make sure you're using the "Sale of Home" interview screens rather than just the general capital gains entry.
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Ryan Young
•Where exactly is this worksheet in TaxSlayer? I've been all through the Sale of Home screens and can't find any option to indicate partial business use that would trigger both forms.
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Samantha Hall
•The worksheet isn't immediately obvious. In the Sale of Home section, after you enter the basic information about the sale, look for a link called "Additional Information" or "Special Situations" (the exact wording varies by version). Click that and you'll find a question asking if any part of the home was used for business or rental purposes. When you answer "Yes" to that question, you'll get additional fields to enter the percentage of business use and the dates of business use. This is what tells TaxSlayer to split the reporting between Form 8949 and Form 4797. The software will then calculate the appropriate amounts for each form. Make sure you have the dates correct for when it was converted from personal to rental use, as this affects the basis calculations significantly.
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Sophia Clark
Has anyone actually tried calling the IRS Practitioner Priority Line about this? I got conflicting advice from my colleagues and decided to go straight to the source. It took almost 2 hours to get through, but the agent confirmed Form 8949 should handle the exclusion portion and Form 4797 Part III should report ONLY the unrecaptured section 1250 gain. The tricky part with software is making sure you're not double-reporting the sale. The IRS agent suggested entering the sale on 8949 first, then going back and entering just the depreciation piece on 4797.
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Katherine Harris
•The Practitioner Priority Line is great when you can actually get through! It's amazing how different tax software handles this situation differently. Some create a phantom entry on Schedule D that offsets the 4797 entry, others require manual adjustments. Did the IRS agent mention any specific form line references to make sure everything ties together correctly?
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