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Taxpayer wants to avoid being taxed on part of the gain on sale of personal residence. He wants to not take depreciation on business part of home. My understanding is that if you use the actual methof for business use of home, at sale, IRS factors depreciation allowed or allowable, so you cannot avoid recapture. Am I correct?
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Two ways to avoid the tax:
1) Sell at a loss
2) Die
See if your client would be interested in one of these alternatives. Might be better to just pay some tax. It's really just tax that they borrow from the government when they take depreciation deductions and then pay back later. Well, unless 1 or 2 happen.
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@bandb2 wrote:
Taxpayer wants to avoid being taxed on part of the gain on sale of personal residence.
Why?
Are you saying your client wants to pay MORE income tax now, AND pay more Self-Employment Tax now, just because it might be subject to income tax when it is sold (only income tax, no SE tax when it is sold)?
If he is that concerned about it, tell him how much tax it saved him and tell him to put that amount into a savings account until the home is sold.
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And the reason he doesn't want to claim the simplified $5 per s/f up to 300, is that even without depreciation he comes up with a higher amount? Even when it allows all the interest and maybe more of the property taxes to be claimed as itemized deductions? (I bet he's not itemizing.)
Apparently he has high operating expenses and low cost basis. Probably claiming 25% business use when that spare bedroom is closer to 10% of livable area. But @TaxGuyBill is correct, why pay income tax and SE tax at ordinary rates now, in order to save capital gains tax later? I bet the guy also has a Roth IRA.
