Discussion:Tax benefit rule/depreciation recapture
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| Revision as of 13:04, 22 October 2009 KathiJud (Talk | contribs) (The sale of a ho) ← Previous diff |
Revision as of 14:56, 22 October 2009 Smokeytax (Talk | contribs) (I'm really glad) Next diff → |
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| If the home office is a totally separate structure from the residence, you must still allocate this as a sale of two separate properties.}} | If the home office is a totally separate structure from the residence, you must still allocate this as a sale of two separate properties.}} | ||
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| + | {{ForumReplyPost|UserID=Smokeytax|Date=22 October 2009|Text=I'm really glad this has come up. | ||
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| + | Here's a quote from Pub 587, in the chapter "Sale or Exchange of Your Home" that has puzzled me: | ||
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| + | "Depreciation - If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain equal to any depreciation you deducted (or could have deducted) for periods after May 6, 1997. This means that when figuring the amount of gain you can exclude, you must reduce the total gain by any depreciation allowed or allowable on the part of your home used for business after May 6, 1997. | ||
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| + | If you can show by adequate records or other evidence that the depreciation you actually deducted (the allowed depreciation) was less than the amount you were entitled to deduct (the allowable depreciation), the amount you cannot exclude (and must subtract from your total gain when figuring your exclusion) is the amount you actually deducted." | ||
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| + | Any thoughts? | ||
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| + | }} | ||
Revision as of 14:56, 22 October 2009
Discussion Forum Index --> Advanced Tax Questions --> Tax benefit rule/depreciation recapture
Discussion Forum Index --> Tax Questions --> Tax benefit rule/depreciation recapture
| 21 October 2009 | |
| An individual taxpayer sells their primary residence that they have been using partly as a home office in previous post- 1997 years. In some of those years due to modest income, taxpayer derived no tax benefit from the depreciation deduction. Taxpayer then sells property and calculated gain does not exceed $250,000 exclusion. However, taxpayer has taken significant depreciation as partial home office for past eight years. Can taxpayer exclude the recognition of an appropriate portion of the depreciation recapture under IRC 1250 in light of tax benefit rule (IRC 111)? | |
| 21 October 2009 | |
| simplifying the question: if a taxpayer didn't save taxes based on depreciation taken, does the depreciation need to be taken into account as recaptured/unrecaptured gain when the asset is sold?
YES, it does, therefore NO you can't use the tax benefit rule | |
Death&Taxes (talk|edits) said: | 21 October 2009 |
| But note that the gain on the sale from that depreciation could be used to compute the allowable home office deduction this year by including it in the profit. | |
Harry Boscoe (talk|edits) said: | 21 October 2009 |
| Did the taxpayer "derive no benefit" in his The answer to your question - a very good question - will depend on which of these is the case. And here's a kicker: *both* of them might apply. Stay tuned while Kevin starts backpedaling... | |
| 22 October 2009 | |
| This may not be too harsh.
In general, the gain you cannot treat as tax free is equal to the applicable depreciation after 1997. This would be Sch D capital gain, not taxed as ordinary income and no recapture of any SE tax you saved from the deduction. Any carryover office in home deductions may be allowed in the year of disposition. | |
| 22 October 2009 | |
| The sale of a home containing a home office was much more complex before the change in year 2002. Prior to that we had to allocate the sale to two assets: the residence and the home office. Allocation was in the same proportion you used to figure the depreciation. Reportable gain on the home office was potentially larger than the current method. The change was more taxpayer friendly.
If the home office is a totally separate structure from the residence, you must still allocate this as a sale of two separate properties. | |
| 22 October 2009 | |
| I'm really glad this has come up.
Here's a quote from Pub 587, in the chapter "Sale or Exchange of Your Home" that has puzzled me: "Depreciation - If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain equal to any depreciation you deducted (or could have deducted) for periods after May 6, 1997. This means that when figuring the amount of gain you can exclude, you must reduce the total gain by any depreciation allowed or allowable on the part of your home used for business after May 6, 1997. If you can show by adequate records or other evidence that the depreciation you actually deducted (the allowed depreciation) was less than the amount you were entitled to deduct (the allowable depreciation), the amount you cannot exclude (and must subtract from your total gain when figuring your exclusion) is the amount you actually deducted." Any thoughts? | |
