sale of my primary home & exclusion of gain (single: $250,000)

[jan1666]

Hi there- I sold my primary residence (purchased 6-1-2005) last October (10-15-2019) for $519,000 and the tax basis is $450,000.  I am single and am able to exclude $250,000 of gain yet the program is showing I owe a capital gain of about $9,000.  I don't get it.  I used a small room for a home office for the 14 years I lived there, is this causing this issue?  What am I doing wrong.  I know I have to recapture some of the depreciation but a gain of $9,000 does not look correct.  Thanks ahead of time for any wisdom.  J

[mellish7777]

$9k does look correct based on the numbers you posted and it's over 14 years.

[Carl]

I used a small room for a home office for the 14 years I lived there

Then by federal law you were required to take depreciation for that home office, at least up to 2013. Starting in 2013 you had the option to take the "simplified option" But weather you took the simplified option or not, in the year you sell you are required to recapture all prior depreciation taken and pay taxes on it. Additionally, that depreciation recapture increases your AGI and can potentially put you in the next higher tax bracket.  Note that the recaptured depreciation is *NOT* included in your $250K exclusion. You *WILL* pay taxes on recaptured depreciation *NO* *MATTER* *WHAT*.

I sold my primary residence (purchased 6-1-2005) last October (10-15-2019) for $519,000 and the tax basis is $450,000

So are you saying that you sold the property for $969,000??? Please clarify because the term "tax basis" is not a common term, whereas the term "taxable gain" or "reportable gain" and "net gain" are more common to use as an indication of profit made on a sale.

Overall, it sounds like you may have made a simple error in data entry such as leaving out a zero or a misplaced decimal point,

[mellish7777]

"Tax basis is not a common term"???????? It's listed in Wikipedia! Tax_basis .........and $9k sounds normal for 14 years worth of depreciation of a home office.

[Anonymous]

we have no way of knowing if $9,000 is reasonable or not. it depends on how much depreciation you took.   by the way, did you use a 39 year life which is proper for home office or 27.5 years? doesn't really matter now.    but for a quick calculation if you took $36,000 in depreciation over the years and we assume the recapture tax rate is 25% then $9,000 is reasonable 

[mellish7777]

Jan1666 didn't say the TAX was $9k....Jan1666 said there was a GAIN of $9k. If you figure around 14 years of home office depreciation deductions on those numbers $9k worth of recapture is reasonable.

[Opus 17]

The only way to know how much depreciation needs to be recaptured is for the taxpayer to review all of his past tax returns. You should always keep tax records related to your home for as long as you own the home plus 6 years after you sell it.  If you used TurboTax every year, then you can look at the depreciation worksheet from your 2018 tax return and it should show the cumulative total of depreciation that you claimed on the home office deduction. If you begin using the simplified Safe harbor method in 2013, you would need to look at your depreciation schedule for 2012.  

Either way, the bottom line is that because you took a home office deduction, you must now pay recapture tax on the part of the gain that is due to depreciation that you took or could have taken, and it is not covered by the exclusion.