Published October 1, 2026
When I first started claiming the home office deduction, I did what most careful filers do: I ran the actual expense method, watched it beat the simplified method by a few hundred dollars, and filed Form 8829 feeling pretty good about myself. Nobody at that moment mentioned that part of my deduction was really a loan from the IRS, with repayment due the year I sold the house.
That is essentially what home office depreciation is. Every year you claim it, it trims your cost basis in the home. When you sell, the IRS pulls that depreciation back into income and taxes it as "unrecaptured Section 1250 gain" at up to 25 percent. The home sale exclusion that shelters the rest of your gain does not shelter this part.
A worked example
Say you bought a home in 2018 for $320,000. The land under it is worth $70,000, which leaves a building basis of $250,000. Your office is a 200 square foot spare bedroom in a 2,000 square foot house, so your business-use percentage is 10 percent.
Your depreciable basis is 10 percent of $250,000, or $25,000. The IRS treats a home office as nonresidential real property, recovered over 39 years straight-line. The full-year rate is 2.564 percent, so your annual depreciation is $25,000 x 2.564% = $641.
Over 8 years you claim about $5,128 in depreciation. If you are in the 22 percent bracket, that saves roughly $141 a year in income tax. Because the deduction also lands on Schedule C, it trims self-employment tax too: 15.3 percent of $641 is another $98 a year. Total benefit: about $239 a year, or roughly $1,912 over 8 years. Not life-changing, but real money.
Now you sell the house in 2026 for $500,000. Your gain is $500,000 minus your adjusted basis ($320,000 - $5,128 = $314,872), which is $185,128. The Section 121 exclusion (up to $250,000 for single filers, $500,000 married filing jointly) shelters the whole gain. Almost.
The $5,128 of depreciation you claimed is carved out of the exclusion. It is taxed as unrecaptured Section 1250 gain at up to 25 percent, which means a tax bill of up to $1,282. Your "tax-free" sale quietly costs you more than $1,200. And the number grows with bigger offices, pricier homes, and longer holding periods.
The trap most people miss: "allowed or allowable"
Here is the part that stings. The recapture applies to depreciation that was "allowed or allowable." Translation: even if you qualified for the actual expense method but never bothered to claim depreciation, or your preparer skipped that part of Form 8829, the IRS still treats you as if you had claimed it. You get the worst of both worlds: no annual tax benefit, and the full recapture bill at sale.
There is a genuine split of professional opinion about how hard this rule bites in edge cases, but for a straightforward home office claim it is not really in doubt. Since you pay the recapture either way, you might as well claim the deduction while you own the home.
When the simplified method wins the long game
Under the simplified method, the IRS treats depreciation as zero. There is nothing to recapture, ever. That is one of its real advantages, and it matters most if you own a home you plan to sell within a few years.
Run our example both ways. The actual method netted about $1,912 in tax savings minus up to $1,282 in recapture, for a net benefit of roughly $630. The simplified method would have paid $1,000 a year (200 sq ft x $5) for 8 years with zero recapture: $8,000 of deductions, no strings attached. In this case the simplified method was the better deal by a wide margin, and depreciation recapture is a big part of why. Most comparisons ignore recapture entirely, which quietly overstates the actual method for homeowners.
None of this means depreciation is a bad deal. If you plan to hold the home for decades, or you are a renter (renters do not depreciate anything), the annual savings usually win. The recapture matters most when you know a sale is coming in the next few years.
One more wrinkle: the separate structure rule
Everything above assumes your office is a room inside your home. If your office sits in a detached garage, a converted shed, or a separate dwelling unit, the rules get harsher. You must allocate the gain between the business and residential portions and report the business portion on Form 4797. The Section 121 exclusion only covers the residential part. If you are building out a backyard office, talk to a tax professional before you start depreciating it.
Frequently asked questions
How is home office depreciation recapture calculated?
Take the total depreciation you claimed, or were entitled to claim, on the business portion of your home since May 6, 1997. That amount is taxed as unrecaptured Section 1250 gain at your capital gains rate, capped at 25 percent, in the year you sell. It is reported through Schedule D.
What if I used the simplified method every year?
Then there is no recapture. The simplified method never depreciates your home, so there is no depreciation to pull back into income at sale. This is one of the strongest reasons homeowners who plan to sell choose it.
Does the $250,000 / $500,000 home sale exclusion cover the recaptured amount?
No. The exclusion shelters your capital gain, but the depreciation portion is carved out and taxed at up to 25 percent. That carve-out is the entire point of the recapture rule.
Can I just skip depreciation to avoid the recapture bill?
Skipping it does not help. The rule applies to depreciation that was "allowed or allowable," so the recapture is calculated as if you had claimed it. You would lose the annual deduction and still owe the tax at sale.
Want to see which method wins for your own numbers?
Run both methods side by side on the Home Office Deduction Calculator and compare the simplified $5 per square foot option against actual expenses on Form 8829.
Tax disclaimer: This article is an educational explanation only and is not tax advice. Depreciation recapture involves your specific basis, holding period, and filing history. Consult a qualified tax professional before making decisions about your return.