You cannot claim depreciation on a primary residence that you only live in. Federal tax law reserves depreciation for property used in a trade or business or held to produce income, and a personal home is neither. Two situations change that: dedicating part of the house to a qualifying home office, or renting out a portion of it. In both cases you depreciate only the business or rental share, not the whole house, and every dollar you deduct will be recaptured when you sell.
Why a Personal Home Is Not Depreciable
Depreciation exists to offset the gradual wearing out of income-producing assets. A house that only shelters your family produces no income, so the tax code offers no deduction for its aging, its maintenance, its insurance, or the slow decline of its structure. Mortgage interest and property taxes remain deductible as itemized deductions, but those live under separate rules and have nothing to do with depreciation.
To move any part of the house into depreciable territory, you have to change how that part is used. The two paths below are the ones the IRS recognizes.
Home Office: The First Exception
If you use part of your home exclusively and regularly for your trade or business, that portion becomes depreciable. Exclusively means the space isn’t also the guest room or the kids’ homework spot. Regularly means ongoing use, not a few times a year.
Beyond exclusive and regular use, the space has to meet one of three tests:
- It is the principal place of your business, meaning where you carry out the most important functions.
- It is a place where you regularly meet clients, patients, or customers in person.
- It is a separate structure on your property, such as a detached studio or converted garage, used for the business.
The business-use percentage is usually a square-footage ratio. A 250-square-foot office in a 2,500-square-foot house is 10% business use, and that 10% applies to your depreciable basis to produce the annual deduction.
Actual Expenses vs. the Simplified Method
You choose between two methods each year. The actual-expense method tracks real costs — depreciation, a share of utilities, insurance, and repairs — and gets reported on Form 8829, which flows into Schedule C. The simplified method pays $5 per square foot up to 300 square feet, capping the deduction at $1,500 and skipping depreciation entirely.1Internal Revenue Service. Simplified Option for Home Office Deduction
The choice matters at sale time. Depreciation claimed under the actual-expense method gets recaptured. The simplified method claims none, so there is nothing to recapture. For a small office in a high-value home, the recapture math can erase much of what the actual-expense method saved you along the way.
Employees Cannot Claim It
The home office deduction is available only to self-employed taxpayers and independent contractors. W-2 employees who work from home cannot claim it, even when the employer requires remote work. The Tax Cuts and Jobs Act eliminated the deduction for unreimbursed employee expenses starting in 2018, and later legislation made that suspension permanent. The only relief for employees is an employer-provided accountable reimbursement plan.
Renting Part of the Home: The Second Exception
When you rent out part of your house — a basement apartment, a spare bedroom on a short-term rental platform — that portion converts from personal-use property to income-producing property and becomes depreciable.
One threshold matters before you get to depreciation. If you rent the space for fewer than 15 days during the year, you don’t report the rental income and you don’t deduct any rental expenses, depreciation included.2Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc. Past 14 days of rental activity, you report income and expenses on Schedule E.
For mixed-use property, personal use exceeding the greater of 14 days or 10% of the days rented at fair market value causes the IRS to classify the home as a residence. Under that classification, deductible rental expenses cannot exceed rental income, and any rental loss cannot offset your other income.
Calculating the Depreciable Amount
Once you have a qualifying business or rental use, the calculation runs in the same sequence.
Start with basis. For property converted from personal use, the depreciable basis is the lesser of your adjusted basis or the fair market value on the conversion date.3Internal Revenue Service. Publication 551 – Basis of Assets Adjusted basis is what you originally paid, plus permanent improvements, minus any casualty losses previously claimed. Using the lower figure stops you from depreciating value the home already lost while it was personal.
If you paid $400,000, added $50,000 in improvements, and the fair market value at conversion was $380,000, your starting point is $380,000.
Subtract the land. Land doesn’t wear out, so it doesn’t get depreciated. Split the total between structure and land using your local property tax assessment. If the county values the land at 20% and the structure at 80%, apply that 80% to your basis.
Apply the business or rental percentage. If a 10% home office sits in a property with a $300,000 structure value, the depreciable portion is $30,000.
Spread it over 27.5 years. Residential property depreciates straight-line over 27.5 years under MACRS.4Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System Straight-line means equal amounts each year. On that $30,000 basis, the annual deduction is roughly $1,091.
Adjust the first and last years. The mid-month convention treats the property as placed in service at the midpoint of whatever month you actually start using it for business or rental purposes.5Internal Revenue Service. Publication 946 – How To Depreciate Property Convert a room on October 3 and you get half a month for October, then full months for November and December, so year one holds only 2.5 months of depreciation. The same rule runs in reverse when you stop.
Report the calculation on Form 4562, which feeds Schedule C for a home office or Schedule E for rental use.6Internal Revenue Service. Instructions for Form 8829 – Expenses for Business Use of Your Home
What Depreciation Costs You at Sale
Every dollar of depreciation reduces your adjusted basis, which enlarges the gain the IRS calculates when you sell. The portion of gain attributable to depreciation is taxed at a maximum rate of 25% as unrecaptured Section 1250 gain.7Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed That is typically a higher rate than the 15% or 20% most homeowners pay on long-term capital gain.
Skipping the Deduction Doesn’t Skip the Recapture
The IRS reduces your basis by depreciation “allowed or allowable, whichever is greater.”8Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis If you were eligible to claim depreciation and didn’t, the IRS still treats your basis as though you had. You lose the deduction while you own the home and pay the recapture anyway when you sell. Choosing not to claim depreciation you’re entitled to does not protect you.
The Home-Sale Exclusion Doesn’t Cover It
Section 121 lets you exclude up to $250,000 of gain, or $500,000 on a joint return, if you owned and used the home as your principal residence for at least two of the five years before the sale. That exclusion shields appreciation. It does not shield gain equal to depreciation taken after May 6, 1997.9Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
Say you claimed $25,000 of home office depreciation over the years and sold the house for a $200,000 gain. The $200,000 fits within the exclusion, so the appreciation is tax-free. The $25,000 in depreciation is carved out and taxed at up to 25% anyway, producing up to $6,250 of tax on an otherwise excluded sale. Form 4797 handles the recapture calculation, with any remaining gain reported on Form 8949.10Internal Revenue Service. Instructions for Form 4797
Records You Have to Keep
If you depreciate any part of your home, keep documentation of the original purchase price, the cost of every improvement, the fair market value on the conversion date, and the math behind your business or rental percentage. Hold those records until the statute of limitations closes on the return that reports the sale, generally three years after filing.11Internal Revenue Service. How Long Should I Keep Records?
In practice that is decades of paperwork. Fifteen years of home office depreciation followed by a sale means you need documentation covering the whole ownership period to compute recapture correctly. Closing statements, contractor invoices, property tax assessments, and each year’s depreciation schedule all belong in one file. If you can’t prove basis, the IRS treats it as zero, and the taxable gain is calculated accordingly.