Selling mixed use property that I live in and never rented

[stolenbuick]

I bought a building with a storefront and apartment above. I live in the apartment and use the storefront as a great room and office from my self employed business. I use the address as my business address but all my business is conducted off site (I'm a photographer). Basically it is a live work space for my wife and me. We bought in 1995 and the building is paid off. 

The capital gain would be under $500k. How is this treated for taxes? Can I use personal use exemption for cap gain and not pay any taxes? It is zoned mixed use commercial/residential. What about depreciation recapture? I plan on retiring and have some flexibility on when to sell if that makes a difference. If I end the business and sell later for example. 

Thanks for any input! 

[MariaDG1]

Hello StolenBuick! Thanks for participating in our event today.  That's a somewhat tricky question, but I'll give you my best.  It sounds, from your question, like this is a single property sold as one unit.  If that's not the case, the answer may be different.  But I'll assume that for now.  It sounds like you have been using the property mostly as a home, with perhaps a home office.  In that case, you should be eligible for the home sale exclusion from capital gains tax.  The exclusion limit for a married couple filing jointly is $500,000.  So that was either good fortune or good planning!  The key here, is going to be whether you claimed a home office deduction on your taxes for the portion of the home you used as your office.  And if so, whether you used the standard or simplified method to calculate that deduction.  

• If you never took a deduction, there is nothing to worry about, you can take the exemption from capital gains for sale of a primary residence. 
• If you took a deduction, but used only the simplified method (flat $5 per square foot), then you also have nothing to worry about.  That figure does not include any depreciation, so there is nothing to recapture. 
• If you deducted your actual home office expenses (standard method), then you were required to take depreciation. In this case, the percentage of the home that you depreciated, is the percentage of the profit that will be subject to capital gains tax now.  

I recommend consulting a tax expert for assistance when you are preparing your tax return, to ensure this is calculated correctly.