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My co-worker (HR Block grad-note I have great respect for HR Block grads) is worried that her home sale exclusion from taxation (up to 250K) will be negated since her soon to be ex depreciated part of the home as a home office deduction.

Does that negate the exclusion? I don't think it does. Wouldn't she just have to include as income the portion of the house previously depreciated.

I agree with you. Some depreciation would be recaptured, but the bulk of the gain would be subject to the exclusion.

Also, she feels very confident that she is only allowed a 250k exclusion. Even though they are still married she filed Head of Household last year so they can't file in 2002 as married/joint and get the 500k exclusion.

Any individual is limited to $250,000. Basic math makes that limit $500,000 on a joint return. That cannot break down as $350K for her and $150K for him.

Married taxapayers determine their filing status each year. If they're still married on 12/31/2002, they can file a joint return for 2002 if they both want to. How they filed 2001 doesn't matter.

The previous paragraph was based on a legitimate 2001 HofH filing by her, i.e. dependent child, didn't live together after June, etc. If she just filed HofH because she felt like it, she needs to amend the 2001 return.

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