Sale of Home/Home Office Depreciation and AMT Depreciation

[campoann526]

Hello, 

My husband and I purchased a home before we were married in 2017. We married in 2019 and sold the home in 2022. We did not earn more than the $250K/individual or $500K/joint to have to pay taxes or report that. We have not received a 1099-S. 

However, we filed separately for a number of years, my husband claimed the home office credit. For 2 years we filed jointly, he also claimed that credit. 

Now, if we file separately for 2022, how do I report this? 

Also, where do I find the numbers to total up the Depreciation on previous tax returns? Where do I find the numbers to total up the AMT Depreciation on previous tax returns? How do I know we used these credits, multiple times our expenses on the home were more than his earnings. 

[AmyC]

Since you are filing separately, your concern is to be able to verify that you made $250,000 or less in profit. If you are positive it is below $250,000 with no chance of question, don't worry about this at all. Otherwise:

1. Determine original cost of house and add any improvements made (new bathroom, fence, etc). divide by 2
2. Determine if any depreciation *recapture is required . If so, add up depreciation taken and divide by 2.

If answer 1 minus answer 2 is $250,000 or less, no worries. Do tuck these calculations into your tax folder in case the IRS asks.

If over $250,000 then you will need to file the sale of home.

*depreciation -beginning in 2013, a simplified home office deduction was allowed and no depreciation is required to be recaptured when the home is sold See FAQ #20.

If you are higher income and required to pay AMT,  look for the 6251,  If no 6251, no AMT difference in depreciation.

Sch C explains to attach 8829 unless you are using the simplified method. You can breeze through your returns and see what forms are involved. Line 30 will be blank with no deduction if there is no positive income. 

[campoann526]

If we decide to file jointly, which we might, does the same rule applies but less than $500K? We 100% did not make more than $500K on the home. 

[RobertB4444]

If you file jointly - which is almost always a better filing situation and one that is recommended - then the gain that you are trying to wipe out is indeed $500,000.  

@AmyC is absolutely correct that you do not have to show this transaction on your tax return if it is the sale of a primary residence and - after depreciation recapture and everything - the gain is less than 500K.  

However, it is always recommended that you include the transaction on your tax return just to avoid having the IRS ask the question later.  They have no way to know for sure that the sale was not taxable until you prove it so putting it on your tax return can keep you from getting a letter later.

@campoann526

[campoann26]

You have been so helpful! Quick question, any maybe it's just an issue with the system. When I enter all the information for the home sale, it asks me if we have used a portion of the home as a home office during the time we lived there. I select yes, because that is true. It then asks me for the Depreciation and the AMT Depreciation. 

When I enter any data there, it tells me that I have to pay capital gains tax on the dollar amount entered even though the sale did not earn us $500,000. Why is that? 

I tried to determine the amount there I should enter on my own but that is what brought me to this forum! 

I just want to be certain that I don't need to enter anything there or report the sale at all and therefore pay no additional tax even though TurboTax is prompting me to do so. 

I sincerely appreciate your help!! 

[MaryK4]

Because you took the depreciation for your home office, it is treated as business income so the $500K exclusion does not apply (it is treated as sale of a business asset).  The capital gain essentially represents the DEFERRAL of tax created by using the depreciation deduction.  @campoann26 

[campoann26]

Got it, so I do need to report this to the IRS, correct? 

If that is the case,, if we file separately for 2022, how do I report this? If we file jointly I see where to add the information. The biggest question is where do I find the numbers to total up the depreciation on previous tax returns? Where do I find the numbers to total up the AMT Depreciation on previous tax returns? How do I know we used these credits, multiple times our expenses on the home were more than his earnings. 

[MaryK4]

If you file separate, you can divide the sale proceeds, expenses and exclusion prorata (divide totals by a percentage, as long as 100% is reported).  If you used TurboTax, you may be able to find a depreciation report for the office expenses; otherwise you may be able to find the info needed on past tax returns (See Get Your Tax Record)  @campoann26 

[campoann526]

Thank you! I have used Turbotax since 2017 so all of the data is within your system. Are any experts able to confirm that the numbers I am looking for are on Form 8829 Line 30 or 42?

And if you had a carry over from the previous year, line 31, that was your depreciation from that year, how does that impact the total?

Thank you again! 

[DianeW777 · Accepted solution]

Yes.  Line 42 is the calculated depreciation for each year.  Ignore Line 31 for your calculations.

Line 44 is the accumulated amount that was not allowed from all prior years. Since the depreciation amount is the same for each year with the exception of year one and the last year you can figure out how much you actually used for the home office (i.e., the amount you actually used as a deduction).

• You can use 2.564% times the amount on Line 40, Form 8829, for each full year you used the home office. 
• Divide 2.564% by 12 for the months used in 2017 and 2022.  Multiply the result by Line 40 for each of those years. 
• When you total these three figures, this will provide the full depreciation that would have been allowed if there was enough business income to allow the full amount as a deduction.
  1. If the full amount was used each year, the calculation above will provide the full amount used as a deduction before the sale.
  2. If you have an amount on Form 44 for 2021, then you can subtract that from the calculation for the full amount in your calculation.
     • The result in 1 or 2 above will give you the amount that must be recaptured and entered in the question in the home sale 'Amount of depreciation after May, 1997).

@campoann526