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Depreciation deductions recaptured on home sale

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I’ve used my home for my self-employed business the past 10 years. Are there any possible tax drawbacks if I sell the home? O.M., Santa Fe, N.M.

A. Yes. The home will still qualify for the home sale exclusion if you meet the ownership-and-use requirements for at least two out of the five years. However, if you have used a portion of the home for business purposes, any depreciation deductions attributable to business use after May 6, 1997, are subject to recapture. In other words, you can’t claim the exclusion on that portion of the gain.

Tip: Technically, this recapture provision applies to “allowable” depreciation, whether or not you actually claimed it.

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