From what I read "nonqualified use" only applies if our original use on the home was a rental, and later we converted to a personal residence. To prevent people from moving into their rental properties for two years just to get the $500,000 exclusion. We lived in the home from date of purchase for 20 years before renting it for three.
If you decrease basis by depreciation, increasing your gain (which you are taxed on if over $500,000), plus you recapture that same amount and pay an additional 25% tax on that as ordinary income (even if gain is way under the $500,000), you are basically paying tax on the same amount twice.
It feels like double taxation to me.
Anyways, is this accurate? Is depreciation both subtracted from basis AND added to ordinary income? I was hoping I was doing it wrong!
Does California conform and tax it the same?
Thanks
