HOME OFFICE

[Tracy Lee]

If taxpayer owns home and has home office for a schedule C, is it mandatory to depreciate the office space if taking actual expenses?

 

[Possi]

Short answer, yes.

[Catherine]

Long answer, "Yes, absolutely, as depreciation allowed OR allowable will need to be recaptured upon sale of the home."

[Gail in Virginia]

But if the space is not used regularly and EXCLUSIVELY, then they can't take home office and therefore don't have to depreciate. 

[BulldogTom]

But, if you don't have a home office, you can potentially lose a big chunk of your mileage.   If mileage is part of the Sch. C expenses, and they are claiming distance from home to the first work location and back from the last work location, then the loss of the home office causes the loss of the mileage.  

I was told one time that the only reason the IRS challenges home office is when they think they can get mileage deductions removed from the return.   They don't care about a small percentage of your utilities coming through the return, they want to go after something that will have an impact on the bottom line tax.

Tom
Modesto, CA

[Tracy Lee]

So if tax payer doesn't want to have to deal with depreciation and recapture upon sell of home, best to stick to simplified?

[Terry D EA]

2 hours ago, Tracy Lee said:

So if tax payer doesn't want to have to deal with depreciation and recapture upon sell of home, best to stick to simplified?

Yes, I've noticed that at times, the simplified method is best. 

[jklcpa]

2 hours ago, Tracy Lee said:

So if tax payer doesn't want to have to deal with depreciation and recapture upon sell of home, best to stick to simplified?

Correct.  No recapture of depreciation for years that the simplified method is used.

[GLJEANNE]

But worth looking at the difference in the yearly deductions too.  The simplified gives you a tiny deduction, and over the years, that's a lot they could be saving. 

[DANRVAN]

11 hours ago, GLJEANNE said:

But worth looking at the difference in the yearly deductions too.  The simplified gives you a tiny deduction, and over the years, that's a lot they could be saving. 

Also the tax savings  today will most likely out weigh the future gain considering SE and ordinary tax vs capital gain subject to 1250.

[Lion EA]

I've used the Simplified Method when clients tell me they're going to sell the house soon. And, for my clients who can't track their home expenses, of course! But, mostly, Actual.

[Gail in Virginia]

Around here, where housing costs are relatively low, and climate is moderate (plus people heat with wood, at least partially) the simplified method can actually be better in terms of just OIH deduction.  But only sometimes.

[BulldogTom]

Since we are on this topic, even though a client cannot utilize office in the home, I still put in the return the simplified method form if they have mileage expense claimed on the Sch C.   It is just my way of protecting my client on audit.   I am not sure if it would stand up, since I don't think ATX sends the form to the IRS.

Opinions if this is a good practice?

Tom
Modesto, CA

[Lee B]

9 minutes ago, BulldogTom said:

Since we are on this topic, even though a client cannot utilize office in the home, I still put in the return the simplified method form if they have mileage expense claimed on the Sch C.   It is just my way of protecting my client on audit.   I am not sure if it would stand up, since I don't think ATX sends the form to the IRS.

Opinions if this is a good practice?

Tom
Modesto, CA

Are you saying that you claim the Simplified Method Deduction even though the client can't use it?

[DANRVAN]

13 minutes ago, BulldogTom said:

Since we are on this topic, even though a client cannot utilize office in the home, I still put in the return the simplified method form if they have mileage expense claimed on the Sch C.   It is just my way of protecting my client on audit.   I am not sure if it would stand up, since I don't think ATX sends the form to the IRS.

Opinions if this is a good practice?

Tom
Modesto, CA

Deducting an expense not allowable by the tax code?

[BulldogTom]

1 hour ago, DANRVAN said:

Deducting an expense not allowable by the tax code?

 

1 hour ago, cbslee said:

Are you saying that you claim the Simplified Method Deduction even though the client can't use it?

Not exactly.  When a client has a loss on the schedule C, and part of that loss is derived from mileage expense, I include the home office worksheet in the return and check on the simplified method.   Obviously, the simplified method will not increase the loss on the return as it is not allowed by the code to do so.  My reasoning is that if the return is audited, I can show that there was a home office on the return, it just did not produce a deduction for the business.   The workpapers to the return shows the square footage of the home and the square footage of the office, hence, there must be a home office.

Sorry if that did not make sense.   Maybe it still doesn't.

Tom
Modesto, CA