Hello,

My wife and I sold a house in June 2013. The home was purchased in 2000 and we lived in it for 2.5 years until 2003. From 2003 to present we have been on qualified extended duty for the U.S. government. Likewise, the property has been rented out since we departed. It was depreciated using the 27.5 year straight line method.

At the sale, I was asked if the property had ever been used for income. Answering affirmative, I subsequently received a 1099-S. My question concerns properly reporting the sale because I received the 1099-S. It should reflect that I do not owe capital gains tax (the gain was less than $500K) and I met the 2 out of 5 year rule due to the qualified extended duty. I do need to pay the depreciation recapture.

I suspect I need to fill out some variation of form 4797 or 8949. How do I do this correctly to reflect no capital gains tax and correct depreciation recapture?

Thanks,