Question

Fred used a portion of his residence, which she bought 15 years ago , for business purposes. He has taken depreciation deduction since he bought the home . When he sells his home in May 2019 , his gain is $150,000, $5,000 of which is attributable to depreciation . Which of the following is true ?

a.). A total of 5000 of his gain does not qualify for the home sale exclusion

B.). The basis in his new home must be reduced by $5,000

c.). The depreciation deductions do not affect his exclusion

D.). The depreciation deductions reduce the maximum exclusion amount

Answer 1

The correct answer is letter a).

An exclusion applies when the home is sold. The income from the home sale is considered tax-free in this case because the gain doesn´t exceed the $250,000 limit set by the law. The exclusion doesn´t cover the depreciation and, that´s why the correct answer is A because the 5000 are attributable to depreciation, so it doesn´t qualify for the sale exclusion.