I sold my home in 2023. I depreciated a portion of my home for a few years (2008-2011) because I was renting out a room (within the home - not a seperate building. This was my primary, and only, residence during this period and the entire time that I owned the house. Turbotax is telling me that this depreciation does not fall under the home sale gains exclusion, and needs to be recaptured and will be a capitol gain. Is this correct?
When the room was being used as a rental you received a depreciation expense on the Schedule E you reported for the rental income and expenses.
When the home was sold, the tax code requires that all depreciation is recaptured and entered as income (capital gains) on the return in the year of the sale.
This is no different then if you owed a home and used it as a rental property where you depreciated the property every year getting the benefit of the depreciation as an expense which was used to reduce the rental income you received. The depreciation must be recaptured on the rental property when sold.
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