Home office depreciation - do you claim it?

I was advised for the 2008 tax year to not claim the depreciation of my home office because of the eventual recapturing tax when I sell my home. I however just read this article which tells me this was a mistake. Should I amend my 2008 return (even though I had 0 profit I can carry forward some loss for 2009) and also claim home office depreciation for 2009?

http://www.bankrate.com/finance/money-guides/home-office-can-hav...

Bankrate.com said:
What if you didn't depreciate your home office? You wrote off the space and proportionate utility and maintenance costs, as well as a portion of your rent or mortgage payment but didn't bother with the depreciation calculations or claim it on your tax return. Do you still have to recapture the Section 1250 costs?

"Unfortunately for homeowners, that is true," says Stein. "This unrecaptured Section 1250 rule, according to IRS language, 'applies with respect to depreciation that is either allowed or allowable.' Basically, you get stuck with it if you're entitled to take it, regardless of whether you've actually taken it."

Tollaksen agrees.

"The way the rule reads, and this also is for rental real estate, that you are imputed depreciation deductions even if you don't take them," she says. "You have to depreciate what you are claiming as business use."

Because simply deciding against claiming the depreciation amount doesn't absolve you of owing taxes on it when you sell, you might as well go ahead and get the benefit of it while you're using your home office.

Claim it if you want an audit.

Claiming Home Office and Mortage Interest increases the chance of an audit

yeah audit is a very expensive waste of your time - and most audits result in them finding something - if in their favour add penalties and interest. going back as far as they wish to look - there is no statute of limitations on undiscovered IRS $$$. This is the man you do not want to taunt.

SuperMxyz said: I was advised for the 2008 tax year to not claim the depreciation of my home office because of the eventual recapturing tax when I sell my home. I however just read this article which tells me this was a mistake. Should I amend my 2008 return (even though I had 0 profit I can carry forward some loss for 2009) and also claim home office depreciation for 2009?There are certain very specific qualifications for taking the home office deduction and taking the depreciation/etc. The biggest one being that the space generally has to be 100% business use. If you have an office space in your house that you also use for personal use, it shouldn't be hard to take the position that it wasn't available/used solely for business purposes and thus that no depreciation was allowable. Since no depreciation is allowable, there is no unclaimed depreciation for the IRS to impute and recapture.

theman2 said: SuperMxyz said: I was advised for the 2008 tax year to not claim the depreciation of my home office because of the eventual recapturing tax when I sell my home. I however just read this article which tells me this was a mistake. Should I amend my 2008 return (even though I had 0 profit I can carry forward some loss for 2009) and also claim home office depreciation for 2009?There are certain very specific qualifications for taking the home office deduction and taking the depreciation/etc. The biggest one being that the space generally has to be 100% business use. If you have an office space in your house that you also use for personal use, it shouldn't be hard to take the position that it wasn't available/used solely for business purposes and thus that no depreciation was allowable. Since no depreciation is allowable, there is no unclaimed depreciation for the IRS to impute and recapture.

Thanks for the reply. But does the situation even exist where it is correct to take the home office deduction (property taxes, utilities, etc) and NOT be able to take the home office depreciation deduction? If so, does this sound like my situation?

For my home office I charge my business via my schedule C monthly rent. I determined the square footage of the space and then came up with a suitable rate for my area. The rent covers any joint expenses such as the mortgage, electric, telephone, etc. It is much cleaner this way.

Case1096 said: For my home office I charge my business via my schedule C monthly rent. I determined the square footage of the space and then came up with a suitable rate for my area. The rent covers any joint expenses such as the mortgage, electric, telephone, etc. It is much cleaner this way.

Wouldn't you still be liable for depreciation recapture when you sold the house since you rented out a portion of it?

Sesq said: chimeer said:
Is there a scenario where claiming a home office is actually going to cost more in the long run? The only thing I can think of is if the business doesn't produce any income and isn't likely to produce income in the future.

If you use your personal residence as a home office you convert a portion of it to a business asset. That business asset no longer qualifies for the 250/500K exclusion. Therefore, you can imagine a scenario when you have an office that represents 10% of the property. You hold it for a number of years and take $5K of depreciation. You then sell for a gain of $100k. You have to recapture your $5K of depreciation at 25% (If I recall, unless you are in a lower bracket), plus 10% of your 100K profit does not qualify for the exclusion, so you pay capital gains tax on 10K (either 15% or 20% depending on if you sold before the Bush tax cuts expire).

Capital gains tax on the percent taken as a home office hasn't applied since 2002.

Bankrate.com Article said: Since the IRS changed the rules in 2002, the business use of your spare room is not a tax problem. As long as the office is within the house, rather than in a separate structure such as a guest house on the property, you no longer have to allocate the sale profits between residence and business as was the case before. All the home-sale gains are considered excludable from taxes. The depreciation component, however, will cost you. You'll owe taxes at the 25 percent rate on that $10,000 you wrote off. So instead of no taxes due upon the sale of your home, you will owe Uncle Sam $2,500.

The only thing that is left is recaptured depreciation (25% tax rate), which assuming a business is profitable will be less than or equal to the percent taken off in the year deducted. I still stand by my comments that a profitable business can only lower it's overall tax bill by taking a home office deduction (assuming the taxpayer is legally entitled to it).

Basically the only way a person can loose when taking a home office deduction they are entitled to is if they have an unprofitable business that is unlikely to be profitable in the future. Which at least to me sounds more like a hobby than a business.

To the OP if you took the home office deduction you should take the depreciation as well (Either take both or neither of them). I would continue to take the deduction unless the business is unprofitable in which case you can figure out a way to make the office disallowed (throw some personal items in there) so you don't need to claim either the deduction or the home office.