Sold home in 2024 that I also had a business in that closed 2019. Filed Schedule C and Form 8829 in past

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September 4, 2024
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Suppose you had a small business you conducted out of your home. You filed a Schedule C and a Form 8829 – Expenses for Business Use of Your Home, which allow a small deduction for depreciation of your home.

2019 was the last year you did that business in your home.

Now it’s 2024 and the home is sold. The sale price was under $500,000 which would normally mean there are no tax implications that would need to be considered because it’s under the married threshold for taxability.

BUT you had this business in your home until 2019 and you did get some depreciation benefits from that, so must you pay capital gains tax on the portion of your home sale profit equal to that amount of depreciation? So, the recaptured deductions are taxed at the individuals tax rate, which for this person would be 12%.

Or is Form 8829 considered the simplified deduction method that allows you to calculate your deduction based on the square footage of your business rather than individual expenses, depreciation is treated as zero and you owe no additional tax for this.

I was looking at Publication 523 and with the all and’s and or’s it’s just a bit confusing. So thought I would reach out and see what’s what. Thanks for your input.

Best answer by Anonymous_

Not hypothetical. My mother-in-law sold her house. She had one room in her home she used to do massages for a couple of years. She stopped in 2019. I'm not sure when she started it (and neither is she), but I have worked with her and her taxes since 2008 and I do have Form 8829 that shows me the depreciation that was taken up until 2019 when she stopped doing the massages. BTW thanks for the quick response. I was hoping to get this resolved in case we need to make an estimated payment by 9/15.

So, you simply need to enter the accumulated depreciation figure into the program.

It appears as if you're good to go.

Anonymous_

Employee

See https://www.irs.gov/faqs/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depreciation-recapture-3

Happy24Author

So getting back to my original question. I don't believe the simplified deduction is the method I should use and I think cap gains will need to be calculated. So is the approach that easy that I just add up all the depreciation that was taken for the house during the time the business was going on and pay the tax on that or do I need to fill out the worksheets in publication 523 figuring the amount of the sale of the house minus the original cost paid years ago. Or am I making too much out of this?