Suppose you had a small business you conducted out of your home. You filed a Schedule C and a Form 8829 – Expenses for Business Use of Your Home, which allow a small deduction for depreciation of your home.
2019 was the last year you did that business in your home.
Now it’s 2024 and the home is sold. The sale price was under $500,000 which would normally mean there are no tax implications that would need to be considered because it’s under the married threshold for taxability.
BUT you had this business in your home until 2019 and you did get some depreciation benefits from that, so must you pay capital gains tax on the portion of your home sale profit equal to that amount of depreciation? So, the recaptured deductions are taxed at the individuals tax rate, which for this person would be 12%.
Or is Form 8829 considered the simplified deduction method that allows you to calculate your deduction based on the square footage of your business rather than individual expenses, depreciation is treated as zero and you owe no additional tax for this.
I was looking at Publication 523 and with the all and’s and or’s it’s just a bit confusing. So thought I would reach out and see what’s what. Thanks for your input.
