For many taxpayers, the term depreciation recapture sounds like a tax trap waiting to spring. As a result, some home-based business owners intentionally skip claiming depreciation on their home office, hoping to avoid future taxes when they sell their home.

Unfortunately, this strategy often backfires.

Let’s break down why skipping home-office depreciation can cost you more—and when claiming it actually puts you in a stronger tax position.

The Common Myth: “If I Don’t Claim Depreciation, I Won’t Pay Recapture”

At first glance, this seems logical. Depreciation reduces your taxable income today, but it may trigger recapture tax later when you sell your home. So why not avoid the issue altogether?

Because tax law doesn’t let you off that easily.

The IRS applies what’s known as the “allowed vs. allowable” rule:

• Allowed depreciation: What you actually claimed on your tax return.

• Allowable depreciation: What you should have claimed under the law.

Even if you claimed zero depreciation, the IRS still treats the allowable amount as having reduced your home’s basis.

The Double-Tax Problem You Didn’t See Coming

When you skip depreciation, two things happen:

1. You lose real deductions today – meaning you pay more tax now than necessary.

2. Your home’s basis is still reduced by the depreciation you didn’t claim, which can increase your taxable gain when you sell.

In other words, you may end up paying tax twice:

• Once because you skipped valuable deductions

• Again because your gain on sale is higher

That’s not tax avoidance—it’s a tax penalty you created yourself.

What About the $250,000 / $500,000 Home Sale Exclusion?

Yes, many homeowners can exclude up to $250,000 of gain ($500,000 if married) on the sale of a primary residence.

But here’s the catch:

• Depreciation tied to a home office may still affect your gain calculation

• If your total gain exceeds the exclusion, unclaimed depreciation can push more income into taxable territory

• If the office is outside the main dwelling, the exclusion may not apply at all to that portion

Good News: You May Avoid Recapture—If Your Records Are Clean

Here’s where proper documentation matters.

If your prior tax returns clearly show that you claimed zero depreciation (for example, on Form 8829), those returns can serve as proof. In certain cases, this can eliminate depreciation recapture entirely.

However, this does not eliminate the basis reduction when calculating gain on sale. That part of the tax law is far less forgiving.

Real-World Scenarios

Example 1: Gain Below the Exclusion

• You skipped depreciation

• Your total gain (including allowable depreciation) stays under the home-sale exclusion

Result: No recapture tax and no capital gains tax

Example 2: Gain Above the Exclusion

• You skipped depreciation

• Your gain exceeds the exclusion threshold

Result: No recapture tax—but you still owe capital gains tax on the excess

In both cases, skipping depreciation didn’t help your cash flow—and often made it worse.

Why Claiming Depreciation Usually Wins

Skipping depreciation may feel “safe,” but financially it rarely is. Here’s why claiming it often makes more sense:

• You benefit from immediate tax savings and the time value of money

• Depreciation recapture is often taxed at a lower rate than ordinary income

• You may defer recapture using strategies like a 1031 exchange

• At death, property receives a step-up in basis, eliminating recapture altogether

And just as importantly: consistently reporting a home office with no depreciation can raise red flags with the IRS.

Final Takeaway

Don’t skip home-office depreciation out of fear.

In most cases, avoiding depreciation costs you more than it saves. You give up valuable deductions today, risk higher taxes tomorrow, and lose flexibility in long-term tax planning.

The smarter approach is to claim depreciation correctly, keep clean records, and plan ahead—so your money works for you instead of sitting with the government.

If you’re unsure how depreciation affects your specific situation, professional guidance can make all the difference.