Depreciation on a primary residence is generally not allowed, because federal tax law reserves depreciation for property used in a trade or business or held to produce income. A home you simply live in is neither. Two exceptions open the door to a partial deduction: dedicating part of the home to a qualifying business use, or renting out part (or all) of it. Both come with strict qualification rules and a tax bill waiting at sale, so the decision to claim depreciation deserves more thought than most homeowners give it.
Why a Purely Personal Home Can’t Be Depreciated
The rule is simple. If the property isn’t producing income and isn’t being used in a business, its gradual wear and aging generates no deduction. You can still claim mortgage interest and property taxes as itemized deductions, but those sit under separate provisions and have nothing to do with depreciation. Maintenance, insurance, and the structure’s loss of value stay nondeductible as long as the home remains purely personal.
When a Home Office Makes Part of the Home Depreciable
The first exception applies when you dedicate space to business use. To qualify, the area must be used exclusively and regularly for your trade or business. Exclusively means the room doesn’t double as a guest bedroom or family space. Regularly means ongoing use, not occasional.
The space must also meet one of three tests:
- It is your principal place of business — where you perform the most important functions of the work.
- It is a place where you regularly meet patients, clients, or customers in person.
- It is a separate structure on your property, such as a converted garage, used in connection with your business.
You allocate a business-use percentage, typically by dividing the office square footage by the total square footage of the home. A 250-square-foot office in a 2,500-square-foot house gives you 10%. That percentage applies to your depreciable basis.
Actual Expenses vs. the Simplified Method
There are two ways to claim the deduction. The actual-expense method tracks real costs, including depreciation, utilities, insurance, and allocated repairs, reported on Form 8829 and flowing to Schedule C. The simplified method gives you a flat $5 per square foot up to 300 square feet, capping the yearly deduction at $1,500.1Internal Revenue Service. Simplified Option for Home Office Deduction The simplified method waives any depreciation deduction for that year, which also means nothing to recapture later. For a small office in a high-value home, that trade can come out ahead.
W-2 Employees Are Excluded
The home office deduction is available only to self-employed taxpayers and independent contractors. If you work from home as a W-2 employee, you cannot claim it, even when your employer requires remote work. The Tax Cuts and Jobs Act eliminated the deduction for unreimbursed employee expenses starting in 2018. The only workaround is an employer-provided accountable reimbursement plan.
When Renting Out Space Makes the Home Depreciable
The second exception activates when you rent part of the home, such as a basement apartment or a spare bedroom on a short-term rental platform. That portion shifts from personal-use property to income-producing property and becomes eligible for depreciation.
One threshold matters a lot. If you rent the space for fewer than 15 days during the year, you don’t report the rental income — and you can’t deduct any rental expenses, including depreciation.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, you report income and deductible expenses on Schedule E.
For mixed-use property where you also live on-site, the IRS compares personal-use days to fair-market rental days. If personal use exceeds the greater of 14 days or 10% of rental days, the property counts as a residence, and deductible rental expenses can’t exceed rental income. No loss can offset other income under that classification.
Converting the Whole House to a Rental
If you move out and rent the entire house, the full structure becomes depreciable from the date you place it in service as a rental.3Internal Revenue Service. Publication 527 – Residential Rental Property You split yearly expenses between the personal-use and rental periods and deduct only the rental share.
The conversion also affects the home-sale gain exclusion. To exclude up to $250,000 of gain ($500,000 on a joint return), you must have owned and used the property as your principal residence for at least two of the five years before the sale.4Internal Revenue Service. Topic No. 701 – Sale of Your Home Rent it out for more than three years before selling and you lose the exclusion entirely.
Calculating the Depreciable Amount
Start with the basis. For property converted from personal use, the depreciable basis is the lesser of your adjusted basis or the property’s fair market value on the conversion date.5Internal Revenue Service. Publication 551 – Basis of Assets Adjusted basis is what you originally paid plus permanent improvements made before conversion, minus any casualty loss deductions you previously claimed. Using the lower figure prevents you from depreciating value the home lost while it was still personal. A house bought for $400,000 with $50,000 in improvements but a $380,000 fair market value at conversion starts at $380,000.
Then subtract land. Land doesn’t wear out and can’t be depreciated. The common approach is to use the local property tax assessment: if the county assigns 20% to land and 80% to the structure, apply 80% to your basis. Then apply your business-use or rental-use percentage. A 10% home office in a property with a $300,000 structure value gives you $30,000 of depreciable basis.
Residential property is depreciated over 27.5 years using the straight-line method under MACRS.6Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System Equal amounts each year, no front-loading. On that $30,000 example, the annual deduction is roughly $1,091. First-year and last-year deductions are reduced by the mid-month convention, which treats the property as placed in service at the midpoint of the month you actually started using it.7Internal Revenue Service. Publication 946 – How To Depreciate Property Report the calculation on Form 4562, which flows to Schedule C for a home office or Schedule E for a rental.8Internal Revenue Service. Instructions for Form 8829 – Expenses for Business Use of Your Home
Depreciation Recapture at Sale
Every dollar of depreciation you take reduces your basis, which increases the gain the IRS calculates when you sell. The portion of gain attributable to depreciation is taxed at a maximum rate of 25%, categorized as unrecaptured Section 1250 gain.9Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed That rate is typically higher than the 15% or 20% long-term capital gains rate most homeowners would face on appreciation.
And there’s a trap for people who skip the deduction thinking they’ll avoid recapture. The IRS reduces basis by depreciation “allowed or allowable, whichever is greater.”10Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis If you were eligible to depreciate but didn’t, the IRS still treats your basis as if you had. No deduction during ownership, full tax hit at sale.
The home-sale exclusion doesn’t rescue you from this piece. The up-to-$250,000 ($500,000 joint) exclusion shields appreciation, but it does not shield gain equal to depreciation taken after May 6, 1997.11Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Claim $25,000 of home-office depreciation over the years, sell with a $200,000 gain, and the appreciation falls within the exclusion while the $25,000 is carved out and taxed at up to 25% — up to $6,250 in tax even though the rest of the gain is tax-free. Form 4797 handles the recapture; any remaining gain goes on Form 8949.12Internal Revenue Service. Instructions for Form 4797
Records You’ll Need to Keep
If you depreciate any part of your home, keep documentation of the original purchase price, every improvement, the fair market value at conversion, and the math behind your business or rental percentage. Hold those records until the statute of limitations closes on the tax year in which you sell — typically three years after that return is filed.13Internal Revenue Service. How Long Should I Keep Records? In practice, that means keeping files for decades: closing statements, contractor invoices, property tax assessments, and annual depreciation schedules. If you can’t prove basis at sale, the IRS treats it as zero, which maximizes the taxable gain.