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Does a home office reduce your home sale exclusion?

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I’m selling my house where I’ve claimed home office deductions in the past but not depreciation. Will my home sale exclusion be reduced? E.M., Beaverton, Ore.

A. Yes. If you were entitled to deduct depreciation for a home office, you can’t exclude the portion of your gain attributable to depreciation that could have been claimed for use of home office after May 6, 1997. The rule applies even if you didn’t claim the allowable depreciation deduction for that period.

Tip: The amount of post-May 6, 1997, depreciation is recaptured at a special capital gains rate of 25%, regardless of the amount of the home sale exclusion.

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