Can someone please explain the treatment of depreciation wrt home owner's gain exclusion.
Munch has used his residence, which he bought 10 years ago, for business purposes. He has taken depreciation deductions since he bought the home. When he sells his home in May 2014, his profit is $150,000, $5,000 of which is attributable to depreciation for the period after May 6, 1997. Which of the following is a true statement?
Incorrect A.
The depreciation deductions do not affect his exclusion.
B.
Fifty percent (50%) of the depreciation deductions reduce the amount of his gain eligible for the exclusion.
C.
Only depreciation deductions attributable to post-August 5, 1997, reduce the portion of his gain eligible for the exclusion.
D.
$5,000 of his gain does not qualify for the home sale exclusion.
Answer :
A homeowner can claim depreciation deductions if he or she rents out part of the principal residence to others or uses part of it as a qualifying home office. These depreciation deductions reduce the owner's basis in the home and thereby increase the gain realized when the home is sold. Under '97 TRA, the home sale exclusion is not available for that part of the home sale profit created through depreciation deductions. However, this rule only applies to the extent of depreciation claimed for post-May 6, 1997, periods. In other words, any depreciation taken after May 6, 1997, will be taxed upon the sale of the residence.
BEC - 78
AUD - 69,72,78
FAR - 73, 77
REG - 74, 74, April 20(Monday). Not anymore (Fingers Crossed xxxxx)