Separate Shop/Office

[geekgirldany]

Client has a separate shop and office from the house. So he runs his business out of the separate office. He is a Schedule C. Shop came with the house and he built the office next to it. Shop/Office has separate water and electric.

My question is would this separate shop/office qualify for OIH deduction with a portion of mortgage interest, property tax, etc going towards it?
If I can do this, I am getting around 37% OIH allowed. Does not seem right. Shop 500 sq ft, Office 250 sq ft, and total home is 1,248 sq ft. I add the shop/office 750 + 1248 = 1,998 total sq ft for all.

Would appreciate any help. I've never come across this before.

I have not been active on the board lately. My cat bite me and I have cat scratch fever. Made me a little sick and just not feeling well.

Thank you,
Dany

[taxea]

750 divided by 1998= mortgage percentage
basis of property minus basis land= basis of 1998 sq ft
basis of 1998 sq ft multiplied by mortgage percentage= depreciation amt for OIH

if water and electric are on separate meter from the residence then the total of these items is expensed to the OIH

[Lion]

Feel Better!

My son got cat scratch fever once, and it was not pleasant. Huge antibiotic tablets. But, he recovered nicely. Good luck for a speedy recuperation.

[geekgirldany]

Thanks so much. Still seems like 37% is alot on the mortgage interest which is what I get on dividing the sq footage.

Thanks for the well wishes. Doctor gave me an antibiotic to take but due to some other health reasons I have not started them yet. Hoping it will clear itself up. In the meantime I am really tired and I do have swelling of the lymph node at my elbow.

Been a rough few weeks. Got bitten by cat and now he is in the animal hospital. Guess he was trying to tell me something. He has fatty liver disease and from talking to the vet seems this tax season got him upset and messed up his eating habits. By the time I noticed he lost weight it had already started. Should be getting him though tomorrow.

[Davc]

Assuming he paid cash for the office that was added after purchase, then the office wouldn't be included for mortgage interest.

[geekgirldany]

You are right Davc! It would not be included. Thanks.

[joanmcq]

And don't forget to follow the rules for a separate structure. Since I'm a bit whacked out on percocet following a minor surgery today, I can't remember what they are. But I remember there are some.

Da stoned leading the sick. Maybe not the best scenario.....

[Kram BergGold]

watch out down the road

Because the office and shop are not connected to the house the gain applicable to these structures will be taxed in full on the sale of the property. Unless the owner does a like kind exchange. Or maybe, if business use is discontinued more than two years before the sale and the spaces are converted to personal use you can argue it was part of the home at the time of the sale and as there was home use for more than 2 years the normal home office rules apply. Depending on appreciation rates where this house is located a large home office deduction could come back to bite the client.

[joanmcq]

Thank you Kramberg! Those issues were just what I was thinking of. Or not thinking as it may be last night...