New Client has come to me with a sale of their primary residence. They've lived there for approximately 20 years. Gain is less than $500,000.
About 10 years ago, they re-built part of their property and started renting out a separate living unit.
They never took depreciation on the separate living unit, but reported on Schedule E, all other income and expense, including allocation of mortgage interest and R/E Taxes.
Am I correct in assuming that they need to recognize gain on the sale of their property, for the rental portion only, via depreciation recapture, even though they never took depreciation expense?
TIA for any confirmations and related shared information.