Loss on second home used partially as home office

[fgur]

I've had a second home for 2.5 years. I used the property for 6 months during 2023 as home office.

If I claim full expenses for the home office and therefore also claim depreciation, what happens when I sell the home? If it's sold at a loss - is the loss deductible?

Also, do I get to offset the loss with any other capital gain I have for the tax year?

[DavidD66]

Depreciation recapture tax only happens if/and to the extent you have a gain on the sale of the property.  If you sell the property at a loss there will be no depreciation recapture.  A second home is personal property.  A loss on the sale of personal property, including a second home is not a deductible loss.   

[fgur]

Thank you!

Can you please clarify what you mean by 'deductible loss'?

My understanding was that while the loss from selling the second home won’t directly reduce my other income (it's not deductible), I should be able to use it to offset capital gains. That is, if I have capital gains (profits from selling investments, real estate, etc.) during the same tax year, I can apply the home sale loss to reduce those gains. Is this interpretation correct? Either way, I'm not sure what the tax implications are if that second home was used partially as home office in 2023 and I expect to sell it at a loss due to market conditions in 2024.

[DianeW777 · Accepted solution]

It depends.  You used the term that this was your second home which is a common tax term.  In tax terms this means it is a home you use for personal purposes as a home when you like, but is not purchased for investment.  The fact that you used it for a home office does not constitute business or investment use of the whole home. 

If the sale of the home portion is a loss, it is not allowed to be used to offset gains from investment or business property sales gains. A home office could have depreciation for only the square feet of office space.  The office square feet divided by the total square feet of the entire home would be the business use percentage. Keep in mind that it must be exclusive use and absolutely no personal use of the office space.

Please update here if you have more questions with as much detail as you can and we will help.

@fgur