Home office or not

[Bird Legs]

Client buys, repairs and sells old radios. Has a small building separate from his residence, in the back.
In this building is where he stores his inventory, parts, etc. and does the repair work.
In addition, he has a TV in there that he has turned on while working on the radios.
Does this disqualify the office in home deduction?

[OldJack]

No it is not an office in the home because it is a separate commercial business building that can be deducted as such. The TV is business equipment that can be deducted even if he watches movies or X rated programs while he works. Oh what the hell-0, I'll say he can even drink beer and not work while he watches those dirty movies and the TV is just a non-taxable employee/owner benefit.

[Jan]

No it is not an office in the home because it is a separate commercial business building that can be deducted as such.

Yes, you can use it as Home office, see Pub. 537. and TTB 5-13, even if it is separate structure from you home-- Home office limit still applies.

Jan

[jainen]

Section 121 exclusion

I agree with Jan that it is business use of home. Be careful, though. Since the shop is a separate structure, it will not meet the usage test when he sells the house and wants to take a Section 121 exclusion.

[OldJack]

I agree that you could consider this under the home office rules, but I don't think you have to as it is a shop that has nothing or little to do with an office in the home. The fact that the building happens to be on land owned by the owner of the residence does not necessarily make it residential building property. There are many business with commercial land and commercial buildings with the owner living upstairs and that does not convert the commercial building into an office in the home. There are large commercial skyscrapers with the top floor as a residence for an executive but the skyscraper is not a part of the office in the home. I think there may be a choice here.

edit: Oh, I forgot about all those farm buildings. Do you think they must be allocated on the pub 587, Business Use of the Home", worksheet (like the form 8829) to Sch-F?

[Jiggers]

Not home office

I disagree. The separate structure is not a home office. All expenses related to it are deductible. Having a TV on there will not disqualify it if overall it really is used for his business.

I have a radio in my office that I listen to all day, though I can't tell you what is on! Does that disqualify me from claiming all expenses for my office, which is a separate structure from my home?

Does games that are pre-loaded on computers disqualify that computer from 100% business use in my office that is in a separate structure from my residence?

Home office is space that is dedicated to business use in your home. Separate structures are different.

Farmers who use one room of their house for their farm business also must meet the home office use and limitations apply.

Farmers who have a separate structure for their office, away from their home, on the same property as their home, are allowed to deduct all expenses for that office and are not limited.

[Mark Goldberg]

Home Office

The IRS has gone to great lengths to say that an office in a separate structure is treated as a home office for deduction purposes but not sale purposes. So how does one argue that this building is not a home office. Now maybe because it is a separate structure you would figure out the deductions differently than if the room was in the same building but to me you would clearly file a form 8829.

[OldJack]

Mark.. how many form 8829s (or worksheets) would you prepare for a farm with several buildings, or do you think they could all just be combined onto one form for the office limitation going to Sch-F? The IRS pub 225, "Farmers Tax Guide", talks about depreciating those farm buildings but doesn't show how you allocate the square footage and apply the limitation according to the form 8829 or the similar worksheet.

If the so called farm is not/has not been farmed by the owner, most would say it is just a part of the owners home (or residence).

One thing the Pub 225 points out (or defines) on page 58 is that a farm home is nonbusiness property and then when you sell the farm there may be business property on the same owners land that is not classified as your home :

The sale of your farm will usually involve the sale
of both nonbusiness property (your home) and
business property (the land and buildings used
in the farm operation and perhaps machinery
and livestock).

what to do...what to do?

[jainen]

On a farm

On a farm, you must make a reasonable allocation as to what is the home and what is the farm. That depends on the actual setup. So an outbuilding next to the pool or on the other side of the lawn is probably part of the home. An office out by the bunkhouse or upstairs in a barn is probably part of the farm.

You have the same kind of situation with a home in an apartment building.

[OldJack]

On a farm, you must make a reasonable allocation as to what is the home and what is the farm. That depends on the actual setup. So an outbuilding next to the pool or on the other side of the lawn is probably part of the home. An office out by the bunkhouse or upstairs in a barn is probably part of the farm.

You have the same kind of situation with a home in an apartment building.

And you have the same kind of situation with the shop building on what you might consider the residential/farm ground. The shop is business property if that is what you call it and use it for. As the shop in question probably will not yield much in the way of tax savings it might be wise to not even claim any kind of deduction but insist that it is the primary work place for travel to other locations.

[Jiggers]

Cornfused!

Are you saying that my business office, in a separate structure at my residence or farm, may have limitations on my expenses related to it if I show a loss on my schedule C or F?

From that office I conduct all my business. I have my computer located in that building, have a separate telephone number, restroom facilities, etc.

I have to file an 8829?

[Jesse]

Oops....

I also have a seperate building on my homestead property for my office - seperate structure, phone line, internet service, etc.... and do not file a Form 8829.

According to this thread I should still be filing a Form 8829?

[rosieea]

I also have a seperate building on my homestead property for my office - seperate structure, phone line, internet service, etc.... and do not file a Form 8829.

According to this thread I should still be filing a Form 8829?

I think that those who suggest that such a separate building be subjected to OIH limitations are being overly cautious.

[Bees Knees]

The Office In Home rules under Section 280A apply to "a dwelling unit which is used by the taxpayer during the taxable year as a residence." [Section 280A(a)]

Obviously an office in your home used as a "residence" is then subject to the Section 280A limitations. Section 280A(f)(1)(A) defines a "dwelling unit" as a house, apartment, condominium, mobile home, boat, or similar property, and "all structures or other property appurtenant to such dwelling unit."

The dictionary definition of the term “appurtenant” is “adj : relating to something that is added but is not essential.”

Basically, Section 280A(f)(1)(A) implies that the office in home limitation rules apply to any separate structure on the same property as the taxpayer’s residence, IF that structure is not as important as the taxpayer’s residence.

The difference between a separate structure such as a garage or pole barn next to the taxpayer’s residence used as an office in home and farm buildings on a farm, is that a farm is a business in itself. A farm operation on a tract of land is not “appurtenant” to the taxpayers residence, because the residence does not need 160 acres of land to be a residence. Your house can sit on a 45 by 160 foot lot. A farm needs acreage. There is a big difference between a storage shed or small office building in your back yard sitting on a half acre lot, verses a barn sitting next to your farm house on a 160 acre tract of farm land. The barn and other farm buildings for tax purposes are not sitting on the same tract of land as your residence. Your farm house is sitting on its own little half acre lot for federal income tax purposes, even though the county treats it all as one parcel of land. Thus, Section 280A does not apply to a farmer’s barn, whereas it does apply to a pole barn used for business that sits next to your house on a residential half acre lot.

[OldJack]

Bees, for someone that relies on the code for opinion, you have strayed widely in your interpretation of the code by applying it as you have in this opinion.

I disagree that 160 acres is too much land for a qualified residence. I have a couple of clients that also are not farmers and would disagree if you told them they had too large of ground for their residence. I have not seen any code that says or implies that there is any difference between a 45 foot piece of land verses several hundred acres of residence. Your arbitrary determination based on size of land has no validity or code authority, if your clients agree with your allocation that is their decision but I certainly would not advise my clients the same.

The amount of land and buildings a farmer claims for his "farm business" is a matter of facts as to his determination as further evidenced by his use. That pole barn can indeed be a part of his residence or his farm business as he sees fit and thereby uses as such.

Section 280A(f)(1)(A) defines a "dwelling unit" for purposes of section 280 which covers office in the home, but section 280 has nothing to do with defining business property. The heading of the section is: "Sec. 280A. Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc." I don't think that covers the definition of business property as defined and used by the owner.

If you need a definition of business property you should start with Sec. 1221 (defines a capital asset) and subsequent codes sections such as Sec. 1231. (Property used in the trade or business and involuntary conversions.)

I don't think the IRS had business property in mind when they were drafting code §280. On the contrary I expect they had primary personal real estate in mind that could be used for personal or part business. What purpose, would the taxpayer in this case, do with a personal radio shop when he is in fact engaged as his business with a radio shop. Of course you could question if this business was engaged in for profit or as a hobby, but again that does not change the nature of the use of the building in his business.

I think the taxpayer has a choice as to defining the building as office in the home or as business property as he sees fit. If the taxpayer elects to treat it as other than office in the home there is not OIH limitation or need to file form 8829. As I said in an earlier post it my not be wise to claim any deduction in any case for the building.