“If there’s a plan to sell the property, the cost-benefit should be done. That portion of the home taken as a business expense does not allow for the capital gain exclusion of $250,000 for a single or $500,000 for a couple,” said John Lieberman, a CPA at Perelson Weiner in New York. Clients must have used their house as a principal residence for at least two of the prior five years to qualify for these exclusions.
“If you took home office deductions previously, you have to recapture the depreciation on the office portion when you sell the house,” Abo added. “This depreciation recapture income will be taxed at a rate higher than the preferential long-term capital gains.”
“Run the numbers to see if taking the deduction is worth it,” Lowe said. “Often clients don’t want the surprise of paying taxes when they sell their home and may take the simplified deduction to eliminate that.”