Rented part of a primary residence

Tax, SDIRAs & Cost Segregation
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Rented part of a primary residence

Ryan Underwood
Homeowner · VA · Member since 2010 · 7 posts · 0 votes

Sorry if this is in the wrong forum--

I rented part of my primary residence, like this:

2006 1/3 of it was rented
2007 1/3 of it was rented
2008 1/3 of it was rented
.etc

but I stopped a few years ago. During that time I took depreciation on my taxes for the amount of my home that was rented. I still live there but no longer rent the space and am curious what happens when I sell. I'm aware of the capital gains exclusion of up to 500k of profit (for me and the wife), but is there ANY way around the recapture of the portion I depreciated? And furthermore, I've heard that the IRS will _assume_ you depreciated things even if you didn't take it on your taxes, so when I didn't depreciate for the past few years, will they be assuming I'm on a straight line depreciation for 1/3 of my home (thus I now pay even more in taxes when I sell)? Hopefully someone can translate/understand what I'm asking. Thanks in advance

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Not a CPA, but you can't avoid the recapture, and I think simply informing IRS it was just a primary since will resolve the "unreported" depreciation.

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  • Ryan Underwood
    OP
    Homeowner · VA · Member since 2010 · 7 posts · 0 votes
    12y

    Thanks Wayne

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    12y
    Originally posted by @Ryan Underwood:
    Sorry if this is in the wrong forum--

    I rented part of my primary residence, like this:

    2006 1/3 of it was rented
    2007 1/3 of it was rented
    2008 1/3 of it was rented
    .etc

    but I stopped a few years ago. During that time I took depreciation on my taxes for the amount of my home that was rented. I still live there but no longer rent the space and am curious what happens when I sell. I'm aware of the capital gains exclusion of up to 500k of profit (for me and the wife), but is there ANY way around the recapture of the portion I depreciated? And furthermore, I've heard that the IRS will _assume_ you depreciated things even if you didn't take it on your taxes, so when I didn't depreciate for the past few years, will they be assuming I'm on a straight line depreciation for 1/3 of my home (thus I now pay even more in taxes when I sell)? Hopefully someone can translate/understand what I'm asking. Thanks in advance

    You need to have records of when you stopped renting the house. At the point the depreciation just STOPS. If you did it again, you would pick up right where you left off. Sorry, no way to avoid it. You could 1031 for part of the property, but not worth the effort. I'm assuming you only took depreciation when it was rented and only stopped depreciating because you stopped renting it?

    [email protected]224-381-2660
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