Recaptured depreciation of former rental home (from rental home to principal residence)

NewUserNov2020 — Mon, 11 Sep 2023 18:27:36 GMT

Say I have a rental house that I've depreciated. I understand rental depreciation recapture. But I don't understand whether this rental depreciation recapture goes away after you make the rental home into your principal residence (and live there for at least 2 years out of five to take advantage of the homeowner's exclusion tax break) and then decide to sell it.

Can you avoid paying tax on the recaptured depreciation? My instinct says no, you cannot avoid this tax, just by living in a formerly rented home, as your present principal residence, and then selling that home. Otherwise people would do this all the time and this loophole would be well known. But I rather hear it from somebody here.

Thank you.

Re: Recaptured depreciation of former rental home (from rental home to principal residence)

Anonymous_ — Mon, 11 Sep 2023 18:43:28 GMT

@NewUserNov2020 wrote:
Can you avoid paying tax on the recaptured depreciation? My instinct says no....

Your intuition is correct; you cannot avoid depreciation recapture regardless of how long you use the home as your principal residence (accumulated depreciation does, however, disappear if you die holding the property).

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Recaptured depreciation of former rental home (from rental home to principal residence)

Re: Recaptured depreciation of former rental home (from rental home to principal residence)