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i admit i am not sure of the nuances of this but thought about investigating it and have subsequently seen a tax advisor affirm that this is possible.

i believe it works this way. when you switch the property from business use to your primary residence, your cost basis is the purchase price less the accumulated depreciation taken. after a specified holding period (again i believe it is 2 years) if you then sell the residence you can take the $250/$500k gain exclusion on the sale of your primary residence. so you do pay tax on gain (difference between the selling price and lowered cost basis (purchase price less deprec)) but then 250-500 of that gain requires no tax. the net effect is to not pay tax on the depreciation taken, subject to the limits noted and a property that can be used as a primary residence.

i admit i am not certain about this, and if someone could provide a definitive answer i would appreciate that.
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