I'm getting stuck on accumulated depreciation and adjusting our cost basis after selling a primary home, where part was rented out, last year. Here is an example scenario similar to mine (for a single filer):
Initial Purchase Price 5 years ago: $250K
Accumulated Depreciation from renting out a room in the house: $20K
Home Sale: $600K
Adjusted Cost Basis (excluding other times): $230K (Original price minus accumulated depreciation)
Initial Gain on Sale: $370K
Gain on Sale (minus primary home exemption of $250K): $120K (taxed as capital gains)
Depreciation Recapture: $20K (taxed as ordinary income)
In the above...it seems like depreciation is taxed twice because it both increases the capital gain and is recaptured. Is the above the correct way to treat it in this scenario or should we not be adjusting the cost basis?
