Converting a home to a rental
Once you rent it out, you depreciate the building. That depreciation is subject to recapture (up to 25%) when you eventually sell, even if you later move back in.
Converting a rental to your home
Living in a former rental for two of the last five years can qualify part of the gain for the Section 121 exclusion — but the exclusion does not cover depreciation recapture taken after May 6, 1997.
Nonqualified use
Periods of rental use count as nonqualified use, reducing the share of gain you can exclude. The recapture portion is always taxable regardless of the exclusion.
Frequently asked questions
Does the home-sale exclusion cover depreciation recapture?
No. Recapture on depreciation taken after May 6, 1997 is still taxable, even if the rest of the gain is excluded.
What happens to depreciation when I move into my rental?
The depreciation you claimed remains subject to recapture at sale.
Sources
- IRS Topic No. 409 — Capital Gains and Losses
- IRS Publication 544 — Sales and Other Dispositions of Assets
- IRS Publication 946 — How to Depreciate Property
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.