Home Business Depreciation and Heirs

[SlickMic]

My wife and I both use areas of the home for our respective businesses. Because she is an artist, she uses the entire lower level of the home (1501 sq.ft.) as her studio, leaving ~3500 sq.ft. of living area. I see that I can depreciate this area of the home and net a considerable refund on my return. However, I'm reading that of we sell the home, we'll have to pay the capital gains because we depreciated the home (presumably, this depreciation would be an ongoing thing, as long as she continues to create).

We don't ever intend to sell the home, and in all likelihood, the adult kids will inherit the property. IF they decide to sell, will they be liable for any capital gains taxes, or are they free and clear (the estate won't surpass the $11 million limit)?

[DanPaul02]

Your kids will not be liable for capital gains on the inherited home due to depreciation of the home for your business use.

[SlickMic]

Thanx DanPaul02! I thought and was hopeful that was the case!! Makes quite the difference!

[Hal_Al]

@SlickMic said: "she uses the entire lower level of the home (1501 sq.ft.) as her studio" ..... "I see that I can depreciate this area (3500 sq.ft. of living area) of the home and net a considerable refund on my return".

To claim a home office (business use of home), the space must be used "Regularly and Exclusively" for business. It's not possible to use your  whole residence Exclusively for business. 

[SlickMic]

Understood! I was referring to the 1500 sq.ft. that is being used exclusively as a studio. Not the entire ~5200 sq.ft. of living area in the home.