Depreciation recapture when selling primary residense

[hno4]

Hi, I plan to sell my primary residence which I first lived there for 5+ years, rented for 4 months and then I live there for another 2 years, I understand we need to recapture depreciation in the capital gain when selling, no matter the depreciation will be used to deduct my rent income or not, as other expenses may cover the full rent income.

My question is, does the recapture depreciation only account for the 4 months rental period or include my personal usage for 2 years afterwards? I don't think it's fair to recapture for personal usage period.

What if I do short term rentals occasionally and I converted to personal usage between them? How do we calculate the depreciation when selling?

[PatriciaV]

You would report only the depreciation expense you actually claimed while the property was used as a rental. There is no depreciation for personal use.

If the short-term rentals were 14 days or less, you wouldn't report that income or deduct any expenses.

For more information see:

• Ten Tax Tips for Short Term Rentals 
• All About Rental Real Estate & Vacation Rentals (

[hno4]

Got it thanks, to clarify, if I rent for 4 months, then personal usage for 1 year and rent for another 4 months, the depreciation will restart to accumulate for my 2nd rental, as it should not include my personal use between 2 rentals? let me know if I understand correctly.

[AmeliesUncle]

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@hno4 wrote:

Got it thanks, to clarify, if I rent for 4 months, then personal usage for 1 year and rent for another 4 months, the depreciation will restart to accumulate for my 2nd rental, as it should not include my personal use between 2 rentals? let me know if I understand correctly.

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Yes.

However, can I ask why it is being rented for 4 months on-and-off?  The point I'm getting at is "Nonqualified Use" when you sell.  Generally, when you use the home for your Principal Residence AFTER it is not your Principal Residence (such as renting it out), that triggers "Nonqualified Use" (although there are exceptions, which is why I asked why are you renting it out).

The problem with Nonqualified Use is that your $250,000/$500,000 Principal Residence exclusion is prorated when you sell.  A severely simplified version is let's say you own the house for exactly 10 years and it was rented exactly 1 years (and you used the home as your Principal Residence AFTER it was rented).  In that example, 1/10th (10%) of the profit would not qualify for the tax-free exclusion (in addition to the tax from the gain due to depreciation).

[hno4]

Thanks for the reply. The reason to rent on and off is sometimes my family is going out for couple of months so I'd like to rent out in the vacant period and cover some expense, that's it.

Hmm this is new to me, not sure if this belong to "Nonqualified Use", I thought as longs as it's primary residence and met the 500K tax exemption criteria, I should be eligible, besides the depreciation recapture. If you are correct, it doesn't seem reasonable to rent out primary residence on and off now.

Please elaborate thanks!

[AmeliesUncle]

It sounds like you have Nonqualified Use. 

If you can rent it out for a decent price, it may still be worth renting it out.  But just be aware that whenever you sell the property, some of the gain won't qualify for the exclusion.

[hno4]

Got it, i wasn't aware of so much tax obligation. Actually I also lived in the property while renting out the rest of rooms, so in such case, am I still qualified with the Nonqualified Use prorated rule? I checked a few posts and it seems i'm not qualified if it's owner occupied for personal use. But depreciation recapture is definitely applied here.

@AmeliesUncle 

[DianeW777]

It depends. If you used the property for rental purposes as a 'for profit' activity, then you will recapture the depreciation expense used on your tax returns when you sell the property even if you meet the home sale exclusion rules. You will need to know the days rented and the days it was not rented/fully used as your home after 2008.

See a couple of examples from the Sale of Home section in TurboTax.

Here are a few examples:
1. After owning and living in it for several years, you move out of your main home on August 1, 2024, and rent it out for a year before selling it. The time it is rented out doesn't count as "nonqualified use" because it is AFTER being used as a principal residence.
2. You purchase a vacation home in 2008. It is not rented or used as a principal residence until August 1, 2024 when you move into it and make it your main home. A couple of years later, when this home is sold, the amount of time the property was not a main home after December 31, 2008, is considered "nonqualified use". In this example, the property was a vacation home between December 31, 2008, and July 31, 2024, and none of the exceptions apply, so that time must be considered "nonqualified use".

@hno4 

[hno4]

@DianeW777 Yes, I'm aware of both examples, but I was asking if "nonqualified use" rule still applies when I lived in my property and rented the rest of rooms. I know depreciation recapture is definitely required.

[DianeW777]

It depends and this particular situation could have different view points. Based on example 1. above, the period where you live in the home while at the same time rent out a room is subjective. My belief is that you could still receive the exclusion without using days rented, however you would need to recapture any depreciation used on your tax returns if this is a 'for profit' rental. 

In your situation you could arrive at two selling prices, one for sale of business property and the other for sale of home. If you actually sell the home the details at that point will be the decision maker. Currently, the fact  you only rented it for four months as of now would put you into the first example without 'nonqualified use'

@hno4 .