Rental property or personal property

Exactly what did you do with the property for the past seven years? Did you advertise it for rent? How was it used?

No, I did not advertise it for rent. I converted it to personal use and let my son live there rent free.

I converted it to personal use and let my son live there rent free. The property was sold at a loss.

Leann, you've got a long-term capital gain that should be reported on your Schedule D, or a long-term capital loss that is non-deductible. And don't forget to reduce the original cost of the house by the depreciation that you claimed - or should have claimed - as a deduction during the time you rented the house out.

If you have business property that you convert to personal use you don't get the full 250k/500k exemption. Also, you can't use the exemption to cover depreciation. Though since you didn't live in the house at all, you don't get any exemption.

I know sure whether you use Schedule D or form 4797 to report the sale.