TiaMaria57

Hi all, First I simply love the information I find on this site...thanks to all of you for your questions and answers.

I have a tax question relating to the sale of our house. We are moving back to the UK (from the US), next spring for retirement and we have just sold our home. My husband has run his own business from our home claiming the home office deduction. During the last 4 tax years he took the $1500 standard deduction for home office expenses on his taxes. However, previous to this been an option (2012 and prior), he claimed home office expenses over the square foot method, which resulted in an allowance against his taxes and depreciation of the home.

We’ve scanned several tax years records, (but not all), to save weight taking them back to the UK and we destroyed the rest, even though we understand the IRS only require you keep the last 3 years. Now I am wondering how this depreciation, (which he previously claimed), will affect us having sold the house and if we will owe back taxes on the sale price of the house, given that it has appreciated considerably over the last 25 years we owned it. Unfortunately we didn’t scan all 25 tax years since the IRS stated that one doesn’t have to go that far back.

Whilst in the lawyers office last week signing the closing documents on the house sale, our lawyer asked us if we had claimed the home office deduction. We said “yes” and our lawyer said he will have to pass that information on to the buyers attorney to notify the IRS and generate a 1099. We never considered this issue prior to been in the lawyers office, hence not scanning all 25 years.

Has anyone come across this situation and been affected? I welcome any thoughts on this and how it may affect us as well as others in a similar situation.

Thank you for your time reading this.
TM

Pulaski

Depreciation is clawed back by a capital gains tax on the sale proceeds, assuming the house has maintained or gained value.

Giantaxe

If you claimed depreciation more than three years ago, you should have kept records back to when you started claiming depreciation, however many years ago that was. As Pulaski says, depreciation is clawed back when capital gains are calculated.

The IRS most definitely doesn't state that there is a limitation on record keeping. Typically, they can only challenge a return going back three years, but there are many circumstances - including depreciation - where records must potentially be kept longer.

You can ask the IRS for transcripts of past tax return information:

https://www.irs.gov/individuals/get-transcript

TiaMaria57

Thank you for explaining this.

TiaMaria57

Thanks for this link, this is really useful and for explaining how it works. Both yourself and Pulaski have answered my query. Very much appreciated.

Pulaski

You're welcome.