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Future payback for past home office

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. If I sell my house where I’ve used a home office for my self-employed business, is there a tax penalty? A.N.K., Portland, OR

A. Sort of. Assuming you’ve lived in the place as your primary residence at least three of the five previous years, you still qualify for the home sale exclusion of up to $250,000 for single filers and $500,000 for joint filers. But you must “recapture” depreciation tax benefits of a home office attributable to business use after May 6, 1997.

This rule has the impact of a tax penalty for taxpayers who have claimed home office deductions.

Tip: The recaptured depreciation is taxed at a special 25% maximum federal tax rate.

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