Schedule E depreciation expense and recapture

[ChrisTopWils]

I have been receiving rental income from my employer for the office in my home and reporting it on Schedule E for years. I have been depreciating a $74K portion of my home and deducting other expenses as well. Now I have retired and will show no more income on Sched E. Can I still deduct depreciation expense? Will accumulated depreciation be recaptured when I sell the house? How does this work?

[ColeenD3]

No, you can no longer continue to depreciate what is no longer business property. Yes, when you sell the house, you will then recapture the depreciation you took. Make sure to keep the records for future use.

[ChrisTopWils]

OK, I understand not depreciating when property is out of service.

How does recapture work?  I valued the work portion of my home at $74K and have taken accumulated depreciation of $30K.  Will the $30K be taxed as income when I sell the house, or will it just be subtracted from the total basis of the house, or will something else happen?

[RobertB4444 · Accepted solution]

It will increase your gain when selling your primary residence.  You will still have the exclusion on gain from a sale of primary residence, though, so as long as you don't make a profit of $250K (including the depreciation) you still won't be paying taxes.