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Caught in a depreciation tax trap

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Q. In a recent article, you said that you must report depreciation as taxable income on a home sale, even if you didn’t claim it. Is this correct? J.R.H., Pensacola, Fla.

A. Yes. The tax rule for the home sale exclusion is that you can’t exclude allowable depreciation attributable to use of a home office after May 6, 1997. The key word in this rule is “allowable.” The IRS interprets this to mean that depreciation must be recaptured as taxable income whether or not it was actually claimed for a home office.

Tip: For more details, see page 17 of IRS Pub. 523, Selling Your Home.

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