New Business and Deductions

[mblatour]

My husband started a new business this year (second to his full-time job). He is certified to sell and install Cold Climate Geothermal Heating/Cooling/Hot Water systems. He's recently installed 2 systems into our new home (one for each building we have). The best way to sell these systems is by demoing our systems to potential clients. We'd like to be able to give a "tour" of our 2 buildings, show the pictures we took of the entire process and also use our bills we are paying out on electricity as examples to what these systems can save you in energy costs versus going with fossil fuels.

Other than the expenses we have into his classes, start-up costs for tools, business cards, etc., is there any way we can deduct all or part of the systems on the business taxes (currently a sole proprietor)? Can we deduct something for his time involved in selling the systems?

Think broadly on this one. I am counting on your years of knowledge to find me some direction here. Thanks a million!!

[Luis Mopeo]

My husband started a new business this year (second to his full-time job). He is certified to sell and install Cold Climate Geothermal Heating/Cooling/Hot Water systems. He's recently installed 2 systems into our new home (one for each building we have). The best way to sell these systems is by demoing our systems to potential clients. We'd like to be able to give a "tour" of our 2 buildings, show the pictures we took of the entire process and also use our bills we are paying out on electricity as examples to what these systems can save you in energy costs versus going with fossil fuels.

Other than the expenses we have into his classes, start-up costs for tools, business cards, etc., is there any way we can deduct all or part of the systems on the business taxes (currently a sole proprietor)? Can we deduct something for his time involved in selling the systems?

Think broadly on this one. I am counting on your years of knowledge to find me some direction here. Thanks a million!!

No and no.

Expenses for business use of the home are not deductible, except under specific conditions, one of which is exclusive business use of the area being claimed.

You can't take a deduction for time spent.

[sea-tax]

No and no.

Expenses for business use of the home are not deductible, except under specific conditions, one of which is exclusive business use of the area being claimed.

You can't take a deduction for time spent.

I agree with Luis, no deductions. It would be if say I took a deduction for the time I spent to file my own tax return. Unfortunately those types of items are not deductible business expenses.

[BOB W]

It looks like you are trying to say that he has a "Show Room" display.... Your personal benefit is too great to consider any expense for the business. But the bright side is you could deduct the cost of the pictures showing the various steps in your display book.

In some cases, if you could prove it, that the expense was greater because of the "Show Room" display, but that is really streching it.

[Luis Mopeo]

In some cases, if you could prove it, that the expense was greater because of the "Show Room" display, but that is really streching it.

I disagree. This is business use of the home, and the exclusive use test is not met. Business use of the home is specifically listed in the IRC as nondeductible (with specific exceptions like exclusive use). There is no room for allocation. Even if the taxpayer could prove greater costs, the difference would not be deductible. The rules block the deduction before you would ever get to the computation.

[BOB W]

I disagree. This is business use of the home, and the exclusive use test is not met. Business use of the home is specifically listed in the IRC as nondeductible (with specific exceptions like exclusive use). There is no room for allocation. Even if the taxpayer could prove greater costs, the difference would not be deductible. The rules block the deduction before you would ever get to the computation.

OK!!!!!!!!!!!!!!!!!

[Bees Knees]

He's recently installed 2 systems into our new home (one for each building we have). The best way to sell these systems is by demoing our systems to potential clients. We'd like to be able to give a "tour" of our 2 buildings, show the pictures we took of the entire process and also use our bills we are paying out on electricity as examples to what these systems can save you in energy costs versus going with fossil fuels.

You mentioned 2 buildings. Maybe you can't meet the exclusive use test for your primary residence, but how about the 2nd building? What is that used for? If you converted the 2nd building into a show room and office, used exclusively for business, then you can deduct the cost of the system you installed in that building.

[mblatour]

Bees, we thought about that!

Hubby and I thought about the situation some more and we were touching on the subject of using the second building. Currently, we are living in the 2nd building (it's a house but we will be converting into a second garage next fall). The timing just doesn't work. My husband plans on using the majority of the 32'x52' building for workshop, but I can't say he wouldn't ever use it to store other things or do personal things like work on our vehicles, snowmobiles, four-wheelers etc. In fact, we look forward to finally getting those items out of a tarped canopy temporary garage and into a fully heated garage. I want the best of both worlds, I know, but it was worth a shot. As I told my hubby, who was extremely disappointed, "we can deduct whatever we want, but it doesn't make it right". Therefore, I don't care to take any chances. And hesitantly, he agreed.

It's tough when at my husband's cost he'll have over $30,000 into these 2 systems, but in the long run, they pay for themselves in 5-7 years and the money is in the bank for the rest of our lives after that. Thanks again for your input!

[veritas]

Does your state

have a tax credit for geothermal?

Oregon does.

[mblatour]

Yep it does....

and we'll get $2000 because we have a 3 and 7 ton systems; the rebate is $200 per ton. That's a nice piece of change back. Thanks for the heads up though!