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dp1218
New Member

How do we handle of primary residence where home office was taken as a tax deduction for a few years? Profit was less than $250K

My fiance sold his primary residence last year and made a profit of less than $250K.  However, for about 10 years of the last 15 he took a small deduction for a small office in the home.  How do we report this?  We did not receive a 1099-S.  It is also asking for information on depreciation taken; he only took the amount based on square foot - was that considered depreciation?  His tax bracket is well below 25%.  I am thinking that this will not be relevant and probably not be reportable.  Any insight is greatly appreciated!

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2 Replies
pk
Level 15
Level 15

How do we handle of primary residence where home office was taken as a tax deduction for a few years? Profit was less than $250K

@dp1218 , if he took the standard  amount based on square footage (exclusively and routinely used for business), then it would hard to find the  allowable depreciation embedded  into it.,  But note that depreciation lowers the basis ( Acquistion cost plus cost of any improvements) is reduced by depreciation allowed and thus increases the  profit  ( may push you past the  untaxed profit margin of $250,000).  Also  any accumulated depreciation causing the profit, needs to be taxed at ordinary  marginal rate not at capital gains rate.  Therefore it is a good thing that he used the standard rate rather than actual

I am sure you are aware that for the gain exclusion ( from taxes ), there are a few requirements :   (a) must not have used this exclusion in the last two years;  (b) must have used this property as  main residence  for  a total 760 days  within the last five years  ( from the date of sale ) and (c) must have owned the property for at least two years.

 

Does this make sense ?

Is there more I can do for you ?

 

 

DawnC
Expert Alumni

How do we handle of primary residence where home office was taken as a tax deduction for a few years? Profit was less than $250K

If he used the simplified method to take the home office deduction, there is no recapture.   However, if he ever used the regular method, he will need to recapture that depreciation.   

The tax from recapturing the depreciation can't be excluded as part of the $250K gain allowance.   

 

Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.  Any years prior to that, he had to use the regular method and would need to recapture those amounts.   

 

IRS Home Office 

Depreciation Recapture

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