[This is from the old forum:]
Like a number of us in the B&B industry, we started the B&B in our home. The big issue comes from when it is time to sell your B&B/Home. As you should know, if you have lived in your home for two of the last five years, you may deduct for a couple, up to $500,000 of profit on the sale, tax free.
Now here comes the kicker. If you have declared a business use for the house and lets say 60% of the premises is declared for B&B use, when you sell, 60% of the profit will be taxable!
Example; if you made a $200,000 profit on the sale, you would now be responsible to pay the tax on a $120,000 gain which at 15% (long term capitol gain) it would amount to $18,000.
The other side of this is that even if you sold your place for what you paid for it, any depreciation will be recaptured as profit which means that you now have to pay your uncle (bad uncle!!!) back for the tax on your income you didn’t pay while you were in business.
I’d love to hear from some tax people or attorneys on this subject and maybe some information on how to take title to maximize the amount of money you keep in your pockets and if there is any way around losing your tax free profit exemption when you sell your home which you used for a B&B.