What is depreciation recapture on a home office when I sell my house?

If you use the actual-expense home office method, part of your deduction each year is depreciation on the business-use portion of your home. When you sell, the IRS 'recaptures' that depreciation, taxing it at a rate up to 25% even though the rest of the gain may qualify for the home-sale exclusion. In other words, the depreciation you deducted comes back as taxable income at sale. The simplified home office method avoids this because it claims no depreciation. This recapture surprise is why some homeowners choose the simplified route despite a smaller annual deduction. Keep records of depreciation claimed, because you owe the recapture whether or not you tracked it.