Office in the Home Deduction

[Anonymous]

If one is eligible to take this deduction, are you required to depreciate the home?

[jainen]

No

>>are you required to depreciate the home?<<

No, but you are required to depreciate the office.

[Unregistered]

Response copied form the &quot;other&quot; board

"While the law clearly states that all depreciation that is allowed or allowable MUST be taken, there is another staement to be considered for an office in home. I direct your attention to Pub. 587, page 14 in the section headlined, "Depreciation". In that section it states, "If you can show by adequate records or other evidence that the depreciation deduction allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed." Therefore, if the allowable amount was, for example, $1000, but the amount allowed (the amount actually deducted) was zero, then the drepeciation that must be taken into account is zero. Hence, even though the depreciation is required, upon sale of an office in home, depreciation does NOT have to be recaptured unless it was taken (allowed)."

[Gretel]

Nice piece of information.

Fail to see though how this relates to the question unless you want to assume they don't have enough income anyway to make use of all the home office deductions.

[Unregistered]

The question that was asked was if it was required. The response simply answered that question. It did not provide advice as to whether it was good , bad or indifferent. But it did aswer the question as to if it was required.

[jainen]

nothing of the kind

>>it did answer the question as to if it was required<<

It did nothing of the kind. First of all, the paragraph explains how to calculate the exclusion of gain when the personal home is sold. That is a completely different matter from deducting business expenses.

Secondly, the reference is to depreciation that is not allowed, such as when it would create a Schedule C loss. That's a different matter from depreciation that is allowed but the taxpayer chooses to not deduct it.

[rosieea]

"While the law clearly states that all depreciation that is allowed or allowable MUST be taken, there is another staement to be considered for an office in home. I direct your attention to Pub. 587, page 14 in the section headlined, "Depreciation". In that section it states, "If you can show by adequate records or other evidence that the depreciation deduction allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed." Therefore, if the allowable amount was, for example, $1000, but the amount allowed (the amount actually deducted) was zero, then the drepeciation that must be taken into account is zero. Hence, even though the depreciation is required, upon sale of an office in home, depreciation does NOT have to be recaptured unless it was taken (allowed)."

I trust you're not interpreting that to mean that the taxpayer has a choice of whether or not to deduct it. Depreciation of a home office is often limited by Sch C income, and it may be that the amount allowed is zero.

[JON]

Move the treadmill into

the office and it will not be exclusive.

[Unregistered]

why required to depreciate?

I'm a different "unregistered", but I'm finding this to be an interesting discussion. Where in the Code does it say depreciation is "required" to be taken? Wouldn't this be only in the context of depreciation as opposed to expensing? Why would IRS require to depreciate anything (like your home), thereby reducing income?

[Bird Legs]

Expensing

For EIC purposes? IRS says you must deduct all applicable expenses.
A client comes into your office and says I have a business, however, if I deduct
all expenses I will have a loss. Therefore, I do not want to deduct this or that in order
to show a profit, income and then I will be entitled to EIC.

[Jeremy/FL]

First, I will state that I believe that the law categorically does state that all depreciation that is "allowable" MUST be taken.

However, I believe what the person who started all of this is saying is that, if the depreciation is NOT taken, when a person goes to sell the home that had an "office-in-home", the quoted portion of Pub 587 indicates that, if the taxpayer can prove he did not take the depreciation deduction to start with, then the taxpayer does NOT have to recapture the "allowable" depreciation. In essence then, although required, it would become a moot point upon sale.

I have not read this in connection with any other depreciation, but only with the "office-in-home" depreciation.

I think the problem here may be with the definition of "allowed". The prior writer interprets "allowed" to mean whatever deduction was actually taken. Another writer interpreted it to mean "whatever was legally allowed". But if we take the second writer's definition, then how is that different from "allowable"? Further, why is this language only found relatin to recapture of "office-in-home" depreciation and not for other depreciation? Or have I missed it?

Although this is a new position to me, based on my reading of the quote, I am beginning to lean toward the interpretation of the first writer.

I look forward to further feedback from the board.

Thanks for opening up a very interesting discussion!

[JON]

Computer problem

You buy a piece of high tech equipment, 100,000 and assign it a 29 year life, mistake, you hit the wrong button. 7 years later the piece is sold for 50,000 and only depreciated lets say 25,000 so you had a 25,000 loss on the tax return for the year of sale. The corp gets audited for that year the agent is sharp and quickly points out the error in depreciation. Everything else is clean but the auditor adjusts what depreciation was allowable says the basis was 0, and you now have a 50,000 gain not a 25000 loss and you are probably to late to do the 3115 for a depreciation error-so call your insurance company as the IRS uses allowed or allowable and someone is paying tax on a gain that may have been right, but you never got the deductions-that is way you need liability, errors and ommisions or something if you did it as a professional.

[Armando Beaujolais]

First, I will state that I believe that the law categorically does state that all depreciation that is "allowable" MUST be taken.

We're missing the distinction between deducting depreciation from income, and deducting depreciation from basis. For the above statement, if you're saying that all allowable depreciation must be "taken" meaning it must be deducted, that is not correct.

Yes, all depreciation "allowable" reduces basis. There is a provision that says if you have records that verify you were not able to deduct the allowable depreciation (income limit, etc.), you don't have to reduce basis by amounts that you got no tax benefit for. For example, if you have $500 in depreciation that has carried forward because of the income limit, then you sell your home, your records will show that.

The rules on EIC are from a different can of worms. Court cases have stated that you can't ignore deductions to increase EIC.

I agree with the concept of the person who said to move in a treadmill and eliminate exclusive use. I think it's easier than that.

The IRS attacks "exclusive use." Like if you have a computer in your "exclusive use" home area, and you do not put 100% usage in, it disqualifies the home office. That's a pretty tortured approach, but it works both ways.

I believe if you really looked for 100% exclusive absolutely no personal use whatsoever and all business with nothing remotely resembling personal use of a home, there would never be a qualifying home office anywhere. Ever make a personal call from work?

I think that if a home office really is "exclusive use" for purposes of taking the home office deduction, it's a matter of choice to say "Well, once I let my kids come in and look around and play on the computer." Bingo. No longer exclusive use from the IRS definition.

I think it would be impossible for the IRS to declare a home office "exclusive use" if the taxpayer said it wasn't.

[Jeremy/Fl]

I believe that the original writer DID wish to take the office-in-home deductions but NOT the depreciation. That's where the problem began. I think everyone would agree that is is very easy to get rid of the office-in-home all together by using the "exclusive use" rule.

[Bees Knees]

There have been court cases where basis was reduced by depreciation allowed, even though the taxpayer chose not to actually claim the depreciation.

Take the responsible approach and advise the client to claim the depreciation.