Many business owners hesitate to claim home-office depreciation because they worry about depreciation recapture when they eventually sell their home. The thinking is simple: if no depreciation is claimed, there is nothing to recapture later.
In practice, this approach often produces the opposite result.
Under IRS rules, skipping depreciation does not necessarily protect you from future tax. In some cases, it can increase taxable gain while also causing you to miss valuable deductions today. Understanding how depreciation is treated for tax purposes is essential before deciding whether to claim it or not.
Skipping home-office depreciation does not automatically avoid recapture. IRS rules may still reduce your basis and increase taxable gain even if depreciation was never claimed.
Why Skipping Depreciation Feels Like the Safe Choice
Depreciation recapture applies when depreciated property is sold, and many taxpayers want to avoid it altogether. The concern is understandable. No one wants an unexpected tax bill later.
What is often missed is that tax law distinguishes between depreciation that was actually claimed and depreciation that was allowable under the rules.
The Allowed Versus Allowable Depreciation Rule
When you qualify for a home office deduction, depreciation becomes part of the calculation. The IRS looks at two figures:
Depreciation allowed, meaning what you actually deducted
Depreciation allowable, meaning what you were entitled to deduct
If depreciation was allowable but not claimed, the IRS does not simply ignore it. In many situations, the allowable amount can still affect your tax basis in the home.
That means skipping depreciation can still reduce your basis, even though you never received the deduction.
How Skipping Depreciation Can Create a Worse Result
When depreciation is skipped:
You lose deductions that could reduce current year tax
Your basis may still be reduced
A lower basis increases taxable gain when the property is sold
This combination is what makes skipping depreciation risky. You may give up tax benefits now and still face higher tax later.
Does the Home Sale Exclusion Fix This?
The Section 121 home sale exclusion allows many homeowners to exclude up to $250,000 of gain if single or $500,000 if married filing jointly. While this exclusion helps, it does not eliminate all issues.
Large appreciation can exceed the exclusion, and certain home office arrangements receive different treatment. Basis calculations still matter even when an exclusion applies.
Where This Leaves Most Business Owners
Skipping home office depreciation rarely provides the protection people expect. In many cases, it results in lost deductions without eliminating future tax exposure.
In Part 2, we will cover when depreciation recapture can be limited, how record keeping affects outcomes, and what strategies can reduce or eliminate recapture altogether.
Continue reading:
Home Office Depreciation Part 2: How to Plan for Recapture and Reduce Long Term Tax
If you are unsure whether claiming or skipping home office depreciation makes sense for your situation, a short planning conversation can help clarify the tradeoffs before they become permanent.
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