Another Question Re.

[Bird Legs]

Office in Home-separate storage bldg. behind residence.
If this is not claimed as an OIH, even though it qualifies, any maintenance &
repairs done on the structure are not deductible. Say client paints it and make repairs
totalling $1,000. Not deductible?
Now what if client sells the residence and bldg. Would there be recapture of Deprn?
Even tho no OIH was ever claimed?
Forgive me for asking these simple questions but my mind is functioning in an
unnatural manner.

[Bees Knees]

If the storage unit qualifies for a business deduction, but it is not claimed, depreciation allowed must still be recaptured when the property is sold. That is true for business use of the home as well as commercial buildings.

As far as other expenses such as paint and repairs, they are deductible provided the storage unit qualifies for the home office deduction.

Basically, the choice of claiming a deduction or not is only an issue if the taxpayer qualifies for EIC. In that case, ALL deductions that are allowed must be claimed. Otherwise, the IRS is not going to care if you don't claim all the deductions for an office in home.

It doesn't do any good not to claim all the deductions, so why not just do it?

[ChrisCPA]

One other thing to note here. If the office is a separate structure you will have to allocate the selling price if you sell the residence. This is different than only recapturing depreciation if the office in within the home. This could be signficant if it is a large storage building that has some value.

[jainen]

a circular argument

>>If the office is a separate structure you will have to allocate the selling price<<

This is kind of a circular argument. I'm pretty sure the standard is "within the same dwelling unit," and the court case BK cited used exactly that language for the separate but appurtenant structure. So either it is part of the home or it isn't.

[Harvey Lucas]

Is client insisting?

If it was never claimed as Office in Home, why are you trying to make it one?

There are many valid reasons why a particular OIH situation may not actually qualify as OIH for tax deductions.

Often there is a fine line between when it is and when it is not.

My experience has been that when we have never claimed it, it never becomes an issue.

You can make a convincing argument for "it is" or "it is not" regardless of the scenario.

But the point is....if it was never claimed as a OIH, the presumption is that "it is not"...accordingly, if the property were to be sold, the entire proceeds are subject to the tax free sale of personal residence provisions.

HarveyLucas

[Bird Legs]

Harvey-OIH

Thanks for your response. This office is a separate building from the residence. In it
the client has inventory, repairs and sales radios, and is used exclusively for business.
In addition, even though client has not claimed it in the past, client wants to expense
repairs & maintenance to the bldg. ie, painting etc. $1,000.
So, if client does not want to claim it as OIH, but does want to write off these maintenance costs, sounds contradictory to me.

[Bees Knees]

This is kind of a circular argument. I'm pretty sure the standard is "within the same dwelling unit," and the court case BK cited used exactly that language for the separate but appurtenant structure. So either it is part of the home or it isn't.

Unfortunately, the law is not always consistent. A separate structure appurtenant to the main dwelling unit is considered to be a part of the dwelling unit for purposes of applying the office in home rules. However, there is a difference when it comes to selling the residence.

TTB, page 6-19 says, "If the portion of the home used for business or rental purposes is within the taxpayer's primary residence, the sale of the home is treated as a single sale. A taxpayer who qualifies for the exclusion of gain on the portion of the home used as a primary residence can exclude gain on the entire property. It is not necessary to allocate the basis of the property and the amount realized between the business part of the property and the part used as a home."

"If the portion of the home used for business or rental purposes is separate from the taxpayer's primary residence [such as a separate structure], the sale of the home is treated as a sale of two properties. Basis and the amount realized from the sale must be allocated between the properties."

[Harvey Lucas]

Can't have it both ways!

"If" the OIH were actually "in his home" he gets best of both worlds, ie, gets to take deductions for OIH purposes, but then at sale time, gets tax free gain on sale of main home(except of course he has to recap depreciation, 1250 recap rules apply).

The situation you describe does not qualify for the "best of both worlds scenario".

Since it is a seperate structure and it is used exclusively for business he is required to make an allocation on his tax return and take business deductions for appropriate share of mortgage interest, real estate taxes, insurance, utilities, REPAIRS, PAINT, depreciation and the like....if they repairs are for the seperate structure only then they are deducted 100% as opposed to general mainentance that benefits the entire property.

If he were to sell the entire property in the same year that he has used the property in this manner then he has no choice, he must treat it as 2 seperate sales, part of it is sale of main home tax free rules apply, part of it is sale of business property, 4797, 1250 deprec recap.

If he were to "retire" from the business, and discontinue the use of the seperate structure for "a period of time" (in my opinion at least 2 years), then the seperate structure has now been converted back to his "main home" for purposes of tax free sale of home rules....ie, if he stops conducting business in the seperate structure and waits 2 years then the entire property qualifies for tax free sale of main home rules....(possibly you may still have to recap prior deprec on the seperate structure but I have not researched that).

HarveyLucas

[jainen]

same place all the time

>>the seperate structure has now been converted back to his "main home"<<

If the separate structure is "within the taxpayer's primary residence" when he is not using it as an office, I say it is still in the same place all the time.