Depreciation only on the years you rented out? Or all years?

[James Robinson]

I have a townhouse and I am planning on renting out one of the bedrooms. I know I have to report this and to take the depreciation exemption. I plan on doing this for the next few years. It is also my primary residence. In other words, I am not using the entire property as an investment property. I just plan on renting a room out for a few years until I get a better job.

However, I am hesitant to do this for two reasons:

1. I heard that once you do this you will always have to pay capital gains tax on the property when you sell. Is this true? I don't want this to be a rental property. This is my home first and foremost. If, say, 15 years from now I have to pay a capital gains tax on a property where I only rented a room out for a couple of years, that would be awful.

2. When you have to pay the 25% recap on depreciation when you sell the house, do you only pay for the years you rented out? Or do you have to pay depreciation on every year you owned the house afterwards, even if you were not claiming the depreciation after you stopped renting out the room?

Thank guys.

[Dave Foster]

@James Robinson  You will allocate a % of your primary residence that is being used as a rental much like you do a home office.  You will value the property on the day you put the % into service as a rental.  This along with the original purchase price will help to establish your basis.  Report income and expenses correctly and you will have to take depreciation on the % that is rental.  As long as you live in the remainder this is your primary residence and falls under the primary res rules of sec 121. When you sell you will be selling a piece of real estate that is your primary residence and a piece of real estate that is investment.   One will be tax free.  It will not be depreciated.  One will have tax and depreciation recapture unless you do a 1031 into another investment piece.  A good accountant needs to guide you through this.  The information you've been given so far is not quite all accurate.