Sweet Sweet Section 121 Bonus

If you don’t have IRC code sections memorized, Section 121 is the portion of the code that allows a homeowner to exclude a portion of their capital gain on the sale of their primary residence ($250k filing single/$500k filing joint).

Let’s say you rent out your basement as an AirBNB, so you depreciate the space and claim the related income and expenses. In a situation where the AirBNB was a separate investment property, you’re paying depreciation recapture when you sell along with capital gain taxes.

But in this instance - since it’s part of your primary residence, you don’t have to exclude the AirBnb portion from your capital gain exclusion. You will still have to do depreciation recapture, but up-to-$500k (if married filing joint and meet the exclusion rules) the capital gain exclusion still stands regardless of the fact that you rented out part of your home.

Honestly, THIS is a pretty cool tax benefit of home ownership that I’ve yet to see discussed elsewhere.