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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I purchased a duplex in 1985. I rented half and lived in half

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I purchased a duplex in 1985. I rented half and lived in half until 1993, when I stopped renting and began using the entire thing as my home. In 2007 I moved in with my wife and put the duplex up for sale. No Sale so far.   We are going to rent the duplex starting in 2009.    Is the depreciation I took from 1985-1993 forgiven since it was used soley as my primary residence until 2007?   Where do I begin depreciation when I file taxes for 2009. Start over with a newly calculated cost basis????   When I eventually sell the place what will capital gains be.   I believe I depreciated about 30K of an original basis of 48K from 1985-1993.
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

The depreciation you claimed before it became your primary residence is never forgiven. Even if it remained your primary residence, you would need to reclaim the depreciation at the time of sale.

If you now plan to once again rent the property, you will still only be able to depreciate the remaining basis in the property that has not already been depreciated in prior years. In other words, if your basis in the property is $48,000 and you have already depreciated $30,000 in prior years, you may now only depreciate the remaining basis of $18,000.

When you do sell the property, you will owe long term capital gains tax on the gain from the sale, which will be your selling price less your basis. That will be taxed as a long term capital gain, and that tax rate is currently capped at 15%. That rate may increase in future years. You would also need to recapture all of the depreciation you claimed on the property, and that is taxed at a special rate of 25%.

Depending on when you actually sell this property, you may be able to claim a partial exclusion for the time you used it as your primary residence. But in order to do this you would have to still satisfy the use test in order to qualify the home as your primary residence. The use test requires that you actually lived in the home for 2 of the last 5 years preceeding the sale. So if you moved out on 1/1/07, you would need to sell the home no later than 1/1/2010 to be able to satisfy the use test rule.

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