martha2
Level 1

Client has a sale of primary residence that was converted to a rental.  The eligibility test is met so client may exclude loan per section 121 up to $500k, married filing jointly.  Is the depreciation recapture of the home taken while it was a rental charged against the basis or does it have to be taxed as gain on sale?

0 Cheers
TaxGuyBill
Level 15

The depreciation reduces the Basis.  And the gain from the sale that is due to that depreciation is taxable (it does not qualify to be covered by the ยง121 exclusion).

martha2
Level 1

Thank you!

0 Cheers