Military capital gains exemption for rental sale

First, you would need to take the home out of service in the rental section and change it to personal use. You will need to enter the depreciation on the rental home during the time that the house was rented. You may still have to pay taxes on the depreciation that was taken as a rental. This is depreciation recapture. 

From @DMarkM1:

In the Rental section (under Wages & Income), EDIT your Rental Property Info.

You will however enter/verify the purchase and business use information in the Rental section.  This will calculate the depreciation for the part of the year it was a rental in 2021 and past depreciation that will be taxed due to the disposal of the property.    

1. "Revisit" the Rental topic
2. "Edit" the Rental business
3. "Edit" the "Property information"
4. In the "General Information" section "Edit" the "Situation" area
5. Be sure to select "Sold/disposed" and "Converted" tiles
6. Select "From rental to personal use"
7. Put in "Fair Rented days for 2021"
8. Leave the personal use days blank (unless you lived in the home during the rental time)
9. "Looks Good"
10. Scroll to Assets
11. "Edit" the asset (property)
12. Identify the property
13. Put in your purchase price and cost of land
14. Date of purchase
15. Check "Item was sold/disposed/converted..."
16. Enter date of conversion
17. "No" you have not always used for business
18. Select "Personal use before..."
19. Enter date you started as a rental
20. Enter the percent of business use in 2021.  (percent of year it was a rental)
21. Confirm prior depreciation populated
22. "Yes"
23. "Done" you have the Assets 'converted so personal use'  you will need the amount of Accumulated Depreciation to enter into the 'Sale of Home' section.

Keep in mind, the capital gains will be excluded from your property but ordinary gains will still be taxable if have taken depreciation from your rental property in the past. 

You need to take the home out of service in the rental section but the actual SALE of the house is a primary sale.  In the primary house sale section, When you are asked "Did you use this home for anything other than your primary home", the answer is NO.

Since there is no way to indicate military when showing that your rental was also your personal home, you will have to enter your sale through Sale of Home and show the depreciation recapture.

You have to sell as a personal home sale and mark "Military" for 'Other reason for sale".

If this was a rental property you have to know the total depreciation to enter.

The home sale screen will go back 5 years to 2017, you have to work around that as reading it as 2006 for your practical situation the last 5 years will not count;...lived in for 24 months, yes, and so on as asked.

The new law allows persons on qualified extended duty in the U.S. Armed Services or the Foreign Service to suspend this five-year test period for up to 10 years of such duty time.

Since there is no way to indicate military when showing that your rental was also your personal home, you will have to enter your sale through Sale of Home and show the depreciation recapture.

From @DaveF1006:

To report the sale of the house: 

Keep in mind, the capital gains will be excluded from your property but ordinary gains will still be taxable if have taken depreciation from your rental property in the past. Here is how to report.

1. Go to federal>income and expenses>less common income>sale of a home
2. Next few screens will ask address and sales information about the home including purchase information
3. Next question about the time you lived in the home, here you will answer no
4. Next question will ask did you use this home for any other purpose than your primary home, you will say yes and list the numbers of days you did not live in the home after 2008.
5. Scroll and answer questions when it asks for the reason for the sale, select other reasons
6. Next screen is where you indicate you are in the military.
7. Next screen asks if you are in the military or foreign service.  Here you would say yes in order to get the capital gains exclusion.
8. Next questions will ask how long you lived in the house and how long you owned the house.
9. Next question asks how much depreciation you deducted or allowed to be deducted since 1997.  If you rented the house, you would have claimed depreciation in past years.
10. Continue through the rest of the section.  At the end, the program will inform you of the excluded gain and then the ordinary gain on the sale of your house. Remember being in the military does not exclude the ordinary gain from the sale of this house.

Thank you for your service.