Recapturing depreciation on a converted rental property

[Abhishek Maloo]

Hello All,

I converted my primary residence where I lived for the last 4 years to rental property in the year 2021. While filing taxes for 2021 - I claimed depreciation on my property which amounted to 21,000$. My expenses were anyways more than the rental incomes (credit goes to cash flow negative silicon valley property) without considering depreciation. I realized now that I should not have claimed any depreciation since it did not help in lowering my taxes instead I am carrying forward the passive loss (exactly equal to the depreciation I claimed). 

Fast forward today, I am selling this property and planning to claim the "primary residence tax deduction" (upto 500k of profit tax-free) in my next year's tax return. I heard that I would need to "recapture the depreciation" if I want to claim the primary residence tax deduction on the potential profit of property sale. 

I am looking for advice whether - 

a) should I amend my 2021 tax return and remove the depreciation from it?

or 

b) Would I be able to apply the passive loss I claimed on my 2021 tax return for rental property passive loss to the profit I would make in this property sale in my future 2022 tax return?

Thanks in advance,

AB

[Greg Scott]

Another situation where hiring a professional is money well-spent. A CPA can put your tax information into their system and war game what would be the best scenario for you. 

Depending on other factors with your personal situations, I could envision a scenario where either a) or b) would be better.