MJG CPA Posted March 17, 2008 Report Share Posted March 17, 2008 Client had a daycare business in her home & took home depreciation for bus use of home. She is thinking of closing the daycare business and eventually moving in 2-5 years. Regarding the sec 121 exclusion, my understanding is she will have to report gain up to amount attributed to depreciation after 5/6/97. My question is, does this ever go away? If she holds the property for 5 years as her principal home with no business use, does the depreciation requirement go away? Or does it carry forward indefinitely? Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 17, 2008 Report Share Posted March 17, 2008 Client had a daycare business in her home & took home depreciation for bus use of home. She is thinking of closing the daycare business and eventually moving in 2-5 years. Regarding the sec 121 exclusion, my understanding is she will have to report gain up to amount attributed to depreciation after 5/6/97. My question is, does this ever go away? If she holds the property for 5 years as her principal home with no business use, does the depreciation requirement go away? Or does it carry forward indefinitely? She will have to pay on the depreciation any time she sells Quote Link to comment Share on other sites More sharing options...
MJG CPA Posted March 17, 2008 Author Report Share Posted March 17, 2008 Thank you for the reply. Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 17, 2008 Report Share Posted March 17, 2008 >>does the depreciation requirement go away? << Yes it goes away when the taxpayer dies and the residence is inherited. Quote Link to comment Share on other sites More sharing options...
MJG CPA Posted March 17, 2008 Author Report Share Posted March 17, 2008 Good one, OldJack! Quote Link to comment Share on other sites More sharing options...
jainen Posted March 17, 2008 Report Share Posted March 17, 2008 >>She will have to pay on the depreciation any time she sells<< Come on, folks. The client is trying to develop a long-term plan here -- don't we WANT them to come to us for ideas? I can think of plenty of possibilities One way to avoid capital gains attributed to depreciation is to simply sell at a loss. What, can that really be a legitimate strategy? Sure. In the market we are now entering you might not have any other choice anyway. So you might well think about capital gains tax as you decide exactly when "in 2-5 years" would be best, and how important holding out for the highest price is. Another approach is to realize enough profit to offset the tax hit, although technically you are still paying the tax. Improving the property's specialized advantages for business use might help in that. Another way is to sell in a year when you have capital losses, perhaps from stocks, to offset the gain on Schedule D. Large losses might be simply wasted otherwise. Another way is to trade the business-use property in a 1031 exchange, perhaps by opening a day care center in the new home. Another strategy could be developed around a casualty loss or involuntary conversion. Or by dealing in leaseholds like the big corporations do. Wow! A client asking how to structure a real estate sale AHEAD of time. Surely it's the end of the world. Quote Link to comment Share on other sites More sharing options...
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