Beware of Depreciation Recapture on Home Office Deduction

Note: I wrote this post in 2012, so be aware of its age. However, the content in this post is still accurate and applicable all these years later.


Kay Bell at the Don’t Mess with Taxes blog reminds us that there can be an unexpected, negative tax consequence to taking the home office deduction on a tax return. Someday when the house is sold, any depreciation that a taxpayer has taken through the home-office deduction gets taxed at a 25% rate.

What about just not claiming the depreciation when taking the home-office deduction? Unfortunately, that doesn’t work, as Kay explains:

The IRS is going to make you pay for the home office depreciation when you sell your house even if you didn’t claim it.

That’s right. The law says that you must depreciate your home office to claim all the other home office deduction benefits. And that means that if you claimed all expenses except depreciation, you would still have to account for depreciation when you sell.

I still recommend that people should generally take the home-office deduction if they qualify for it. But it’s also important to know what will happen someday when you sell the property.

You can read all of Kay’s article here.