Case Study — Selling a Home Office

Bob Bruhaha sold his main home in 2011 at a $30,000 gain. He meets the ownership and use tests to exclude the gain from his income. However, he used part of the home as a business office in 2010 and claimed $500 depreciation.

Because the business office was part of his home (not separate from it), he does not have to allocate the basis and amount realized between the business part of the property and the part used as a home. In addition, he does not have to report any part of the gain on Form 4797. However, he does have to report the $500 he claimed as depreciation as income on Schedule D (Form 1040).