Sale of home with home office depreciation

[jerry]

Client (single) sold home at a $500k gain with home office deductions taken last 6 years (about 6k).

I tried dealing with the disposition like a rental, using the depreciation screen 22.  It correctly gets the Section 121 $250k exclusion, but gets the cost basis totally wrong (I think it's multiplying the basis by the home office percentage, but not sure).

What's the best way to do this?  If I enter as a regular disposition on screen 17.1, how do I deal with the depreciation recapture?

Thanks

[George4Tacks · Accepted solution]

https://accountants.intuit.com/support/en-us/help-article/federal-taxes/reporting-sale-home-individu...

Sale of home with business use

IRS regulations indicate that if the residential and non-residential sections are within the same dwelling unit (such as an office in the home), and no depreciation is claimed, Reg. 1.121-1(e)(1) doesn't apply.

If Reg. 1.121-1(e)(1) doesn’t apply, you’ll need to enter the sale as two separate transactions:

1. Divide the sales price, selling expenses, cost basis, and maximum exclusion between the part of the home used for personal purposes and the part used for business or rental.
2. Go to Screen 17, Dispositions.
3. Create a property for the personal part of the home:
   1. Enter the sale details for the personal part.
   2. Under the Sale of Home section, check the box for Sale of Home.
   3. Enter the amount of exclusion allocated in Exclusion (-1 to recognize full gain)[O].
4. Create a second property for the business/rental part of the home:
   1. Enter the sale details for the personal section.
   2. Scroll down to the Form 4797 section.
   3. Enter the amount of Depreciation allowed (-1 if none, triggers 4797).
   4. Under the Sale of Home section, check the box for Sale of Home.
   5. Check the box for Business use in year of sale.
   6. Enter the amount of Depreciation allowed after May 6, 1997.
   7. Enter the amount of exclusion allocated in Exclusion (-1 to recognize full gain)[O].

If Reg. 1.121-1(e)(1) applies to your client, follow the steps for a Sale of home with no depreciation or business use, above.

[jerry]

Thanks, I learned something new today!