Case Study — Selling a Home Office
Let's say that you've been using a room in your house as a home office for the last four years. Your original basis in the home was $120,000, and you sold it in 2001 for $300,000. Your costs of selling were $21,000. The total area of the home is 2,400 square feet and your office is 120 square feet, or 5 percent of the total.
You must treat the sale as the sale of two pieces of property: your home, which is 95 percent of the total property, and your office, which is 5 percent of the total:
| |
Home |
Office |
| Selling price |
$285,000 |
$15,000 |
| Less: selling expenses |
-19,950 |
-1,050 |
| Amount realized: |
265,050 |
13,950 |
| Cost basis: |
114,000 |
6,000 |
| Less: depreciation |
-0 |
-622 |
| Adjusted basis |
114,000 |
5,378 |
| Gain (amount realized minus adjusted basis) |
$151,050 |
$ 8,572 |
The sale of the office portion would be reported on Form 4797, Sales of Business Property. Because the gain on the "home" portion of the property is less than $250,000, it does not have to be reported; if it had been over that amount (or over $500,000 on a joint return), it would be reported on Schedule D.
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