Comments on: Rules for Home Office Deduction for Businesses

By: Shelly

Shelly — Sat, 02 Feb 2008 23:33:27 +0000

I was wondering, if you have a home office, are not married and all of the utilities are in someone elses name, can you still tax home-office deductions? All the utilities are in my boyfriend’s name but I pay half of everything. I didn’t know if that mattered or not. Thanks for any help!

By: Geoff

Geoff — Sun, 25 Nov 2007 01:49:11 +0000

btw, great article!

By: Geoff

Geoff — Sun, 25 Nov 2007 00:33:25 +0000

excuse me, it was IRC sec 121.

By: Geoff

Geoff — Sun, 25 Nov 2007 00:32:14 +0000

This is a follow-up to Gina’s post. The tax on the gain arising from depreciation recapture on a home office is at a 25% rate which can be an unpleasant surprise for taxpayers whose effective rate would other be below that. Granted, the tax is paid with ‘cheaper’ dollars in a later period. But, also be mindful that depreciation on a home office, I believe, can only be taken to the extent there is net income. So, in ventures that don’t show very much income currently, generally, I would advise clients NOT to take the home office.

The Sec 122 exclusion does not cover the gain on the home office. But, as of late, with the real estate market as it, if the home is sold at a loss I don’t think there would be a gain, so that is a big advantage.

By: Matt

Matt — Wed, 18 Oct 2006 11:20:06 +0000

Isn’t the home office deduction an acknowledged red-flag for the audit-scheduling software, though?

Tax avoidance stops just barely shy of being an actual religion for me, but I’m hesitant to claim write-offs that make it substantially more likely I’ll get hauled into the IRS office and grilled on my business expenses.

By: Bryan C. Fleming

Bryan C. Fleming — Tue, 17 Oct 2006 15:32:22 +0000

Great information. I’d just add to REALLY use an accountant. They can tell you for sure if you qualify or not. If you use one of these people your chances for an audit are next to nothing

\- Bryan
http://www.BryanCFleming.com

By: Jen

Jen — Tue, 17 Oct 2006 14:19:11 +0000

How can i apply this to rent? I dont own, but pay a monthly rent for my apt. i dedicate and set up one corner of my apt solely for my home business. Does this work also?

By: prlinkbiz

prlinkbiz — Tue, 17 Oct 2006 12:07:05 +0000

I know some states have little tweaks, like the office may have to be separate from the home, so it’s good, like you said to check the details out. This is one of the things I love about owning my own business and working from home- there are so many tax advantages as well as personal advantages to doing so.

By: Gina

Gina — Tue, 17 Oct 2006 10:34:46 +0000

I have never seen it not worthwhile to take the home office deduction. The depreciation that may be recaptured is minimal in comparison to the benefits received. I wrote an article about it on my blog, here’s the link: http://glgcpa.blogspot.com/2006/08/is-home-office-deduction-worth-it.html

By: Steve

Steve — Mon, 16 Oct 2006 22:55:29 +0000

Being in a different country we have slightly different legislation. I have to say, how nice is it to work from home? To be in control. where I live, I have a view of the Versace Hotel, the ocean and the main street of the Gold Coast.

every day i wake up, I look at that traffic, and am incredibly grateful to not be in it.

By: jim

jim — Mon, 16 Oct 2006 21:32:33 +0000

Excellent point Randy and one thing to consider is that you have to recapture depreciation if you were eligible to deduct it, even if you don’t! So if you run a business and claim it as a home office but you don’t claim depreciation, you still have to recapture it when you sell your home. It’s a crappy rule but it the government avoids having to look through your paperwork… that’s why I’m going to claim depreciation if/when I claim a home office.

As for the gain aspect, the first $250k of gain on a home, if you use it to buy another home, is tax free. It’s $500k if you’re married.

But, I do agree, consulting a tax professional is a good idea… anyone out there?

By: Randy

Randy — Mon, 16 Oct 2006 21:28:19 +0000

I work 100% full-time from home and have a dedicated room for my office. I agree with everything you mention.
However, don’t forget the consequences of all this if you go to sell your home. Basically, you continue to depreciate the asset and then, when you sell the home, the difference between the new depreciated value and the actual sell value is profit, which can be taxed.
This may or may not apply, but be careful here and consult a professional before getting into a situation.