A taxpayer who sells a principal residence that has been used (or is being used) as a rental property will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.

Question

Quizplus · Accepted Answer

This is true. If a taxpayer has used their principal residence as a rental property, they will not be allowed to exclude the portion of the gain attributable to depreciation, even if they meet the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount. This is because depreciation reduces the taxpayer's basis in the property, which in turn increases the amount of gain realized on the sale.

A Taxpayer Who Sells a Principal Residence That Has Been