Recapturing Depreciation on In-home office

[willatbird]

This is when working as a lonely sole-proprietor can get frustrating.....

I've been trying to follow the instructions for re-capturing depreciation on an in-home office for the sale of a home, but it seems like I'm making it more complicated than it should be.  Anybody have any "tried and true" system that they use?

I allocated the sales price on the depreciation schedule so that the gain is ONLY the accumulated depreciation. Then I reduced the sales price on the disposition entry form by that amount.

I also reduced the basis on the disposition entry by the basis on the 4797 (before depreciation since the depreciation is recaptured on the other form).

The recaptured depreciation is showing up on the Schedule D as long term capital gain. Isn't it supposed to be recaptured as ordinary income?

BTW: The gain is well above the taxpayers' $500,000 exclusion. 

[sjrcpa]

It should be on Schedule D. It's unrecaptured 1250 gain and is taxed at a maximum rate of 25%.

[willatbird · Accepted solution]

Thanks for confirming. I think I have "summer brain".

[George4Tacks]

I would input the date of sale on the depreciation input, but NOT the sales price. Input the sale of residence on Schedule D, check the box for Business use in year of sale and input the total amount of depreciation used on OIH as Depreciation allowed after May 6,,,,

[willatbird]

I tried that and it didn't seem to calculate it properly. When I read the Lacerte instructions it said I needed to split it.

[sjrcpa]

I'd dispense with "selling" it through the assets screen.

I'd just enter the whole thing as a sale of principal residence and enter the accumulated depreciation.

[willatbird]

I tried that but I couldn't get it to calculate properly. I wasn't checking a box or something. Already spent too much time on it. Thanks.

[scheunemanncpa]

The depreciation screen has a sales section to code it as 1250 property and a sale of home section to take the 121 exclusion.  You will end up with a sale that should end up with the depreciation taken as taxable profit and the form showing the proper 121 exclusion