Home Office & depreciation

[Possi]

Thanks for the docs

Here is the reply from the IRS Email Tax Law Assistance

The Answer To Your Question Is:
Thank you for your inquiry. Publication 523, Selling Your Home, states on page 17, "If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed."

Consequently, you do have to recapture the depreciation regardless of whether you actually claimed it. This is done on Schedule D by reducing the section 121 exclusion amount by the amount equal to the allowable depreciation.

Just shoot me running. I'm dead wrong. I took all my office expenses but did not depreciate because I didn't didn't think I had to. I am sure I learned that way back when I started 14 years ago at tax-in-the-box. I'll shut my mouth from now on. And I'll never tell the IRS where my home office was! =)

~one playin dead possi

[Larmil]

Just shoot me running. I'm dead wrong. I took all my office expenses but did not depreciate because I didn't didn't think I had to. I am sure I learned that way back when I started 14 years ago at tax-in-the-box. I'll shut my mouth from now on. And I'll never tell the IRS where my home office was! =)

~one playin dead possi

My memory ain't what it used to be, but I remember before that date in 1997 you did have to recapture depr. if wasn't taken in the year of sale. I'm sure someone will correct me if I'm wrong.

[Jesse]

I'll shut my mouth from now on.

~one playin dead possi

I hope not. I learn from my mistakes - although, personally, I'd rather learn from other's mistakes!

[Possi]

if you learn from other's mistakes,

I hope not. I learn from my mistakes - although, personally, I'd rather learn from other's mistakes!

I'm your woman!

[AZ-Tax]

I am curious, how will the IRS trace this

If the Sch C filer uses his/her residence address on the Sch C for 10 yrs and does NOT depreciate their house then sells his/her residence, I believe a 1099-S will be generated on the sale. Will the IRS use the 1099-S to pursue a recapture?

[LawrenceGR]

This

may be one of those that could coast for many years. Consider this: A new client comes to you and says they sold their house, you ask if it has every been used for business, if they say no you would probably go about doing the return. I'm sure this happens quite a bit, but how are we as tax preparers suppose to find out?

[AZ-Tax]

Thats why I have clients sign letters...

I recently acquired a client who I felt could lower their 2007 tax return if they filed MFJ opposed to MFS. The client told me to proceed and amend. There was some other deductions to my client forgot. My software compares the tax savings with MFJ vs MFS and for this client the savings was very nice. Client now does a 180 (I think something to do with marital situation) and wants to amend with the same status of MJS. The client will sign a letter to that request and will sit in my file. I had another client with a partnerhip for which the document (similar to a K-1) my client gave me did not state whether or not my client materially participated but the tax dept of the partnership said they did (in verbal form) and that is what my client wanted to go with. I had my client sign a letter that they participated and that to will sit in my file. For those clients that qualify for an tax deductible IRA contribution, I draw up a comparison of the tax saving with and without an IRA and if they dont want to do the IRA, they need to sign the letter rejecting it.

[Zee]

Here is the reply from the IRS Email Tax Law Assistance

The Answer To Your Question Is:
Thank you for your inquiry. Publication 523, Selling Your Home, states on page 17, "If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed."

Consequently, you do have to recapture the depreciation regardless of whether you actually claimed it. This is done on Schedule D by reducing the section 121 exclusion amount by the amount equal to the allowable depreciation.

So, if you "" the home office by watching TV in the same room or using your computer for personal use, aren't you no longer "entitled" to claim the deduction?

If disqualified, I wouldn't think any recapture would be needed. I agree with Jesse. Does this preclude one from using an 8879 for the other expenses...probably so.

[Earl]

Depreciation

If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed."

I read this differently than AZ Tax. To me it reads that you cannot exclude the amount allowed if it less than the amount allowable. If zero was taken (allowed) then none would be excluded.

This is just the way I read the IRS email. Probably wrong.

[Black Bart]

Hey,

(If you learn from other's mistakes) I'm your woman!

I'll take you up on that -- my wife thinks I've got a girlfriend around here somewhere anyway.

But back to the subject -- like somebody said, just watch a little TV in the room and stop worryin' about it (IRS can't have it both ways).

[Jesse]

So, if you "" the home office by watching TV in the same room or using your computer for personal use, aren't you no longer "entitled" to claim the deduction?

If disqualified, I wouldn't think any recapture would be needed. I agree with Jesse. Does this preclude one from using an 8879 for the other expenses...probably so.

It is true that the personalizing aspect would disqualify the home office, but this would disallow all deductions for the homeoffice, not just the depreciation. So I agree with your conclusion the 8829 expenses would entirely be disallowed.

[Jesse]

I'll take you up on that -- my wife thinks I've got a girlfriend around here somewhere anyway.

But back to the subject -- like somebody said, just watch a little TV in the room and stop worryin' about it (IRS can't have it both ways).

It depends on which channel you are watching. The way the tax laws have been changing it may be ordinary and necessary to have that TV on!

[Larmil]

It depends on which channel you are watching. The way the tax laws have been changing it may be ordinary and necessary to have that TV on!

The Mickey Mouse Club???

[Burke]

My memory ain't what it used to be, but I remember before that date in 1997 you did have to recapture depr. if wasn't taken in the year of sale. I'm sure someone will correct me if I'm wrong.

No, you are right, sort of. But sometime prior to 5/5/97 -- and I cannot remember exactly when --- Congress passed some tax law that inadvertently allowed that no depreciation recapture applied when selling the home. After it became generally known and they took another look, they passed a bill on 5/5/97 that closed this loophole for sales after that date. It was around for a couple of years, I remember having discussions about it, and clients that qualified for it.

[Black Bart]

Well,

It is true that the personalizing aspect would disqualify the home office, but this would disallow all deductions for the homeoffice, not just the depreciation. So I agree with your conclusion the 8829 expenses would entirely be disallowed.

actually that deduction (IMO) never amounts to much tax savings anyhow.