Added to Mom's Deed. Is gift property adjusted basis $0, half of current value, or 100% of current value, or what we originally paid?

[DiAnneInDover]

Mom and I bought a house together 20 years ago, but only put it in her name.  In Nov. 2019, she added me to the deed (but not the mortgage) as I've been paying all of our bills and taking care of her. 

For 30 years I've owned a self-employed home-based business. TurboTax is now saying I need to depreciate my home business.  Mom still lives here and I pay for everything for her. Is the value half of what we originally paid in 2004 since she still owns it also, or half of the 2019 value (since that is when I was added), or all of value or none of it since she is still alive? (And I didn't know about depreciation so I didn't do depreciation in 2020  AND got divorced (fun times, she says sarcastically).  (I really did hunt for the answer, but I couldn't find anywhere with the person still living there. Thank you for any help.)

[ColeenD3]

You only have to claim depreciation if you choose to use the regular method for your home office. If you choose the simplified option, you don't.

If you want to use the regular method, you would only take 50% of the adjusted basis of the house, since that is all you own. You would then prorate the square footage of the space of the home office vs the square footage of what you own.

Simplified Option

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simplified option for computing the home office deduction (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners.

This new simplified option can significantly reduce the burden of recordkeeping by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.

Regular Method

Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.

Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

[AmeliesUncle]

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@DiAnneInDover wrote:

Is the value half of what we originally paid in 2004 since she still owns it also, or half of the 2019 value (since that is when I was added), or all of value or none of it since she is still alive?

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It is based on the 2004 amount, plus cost of any improvements (generally remodeling, furnace, roof, windows, etc.).

[DiAnneInDover]

@AmeliesUncle Thank you so much! Just being clear, even though she is still alive, still lives here, and is still on the deed with me and co-owns the house, I would still claim the whole amount of 2004 price (not half of it with her owning half of the property)? 

Again, thank you. As a frustrated and very broke non-tax person, I appreciate people like you who help frazzled people like me can't seem to find the answers on our own.

[AmeliesUncle]

In most cases you should enter half, because your portion of ownership (and therefore the Basis/cost) is half.

[DiAnneInDover]

@ColeenD3 Thank you! My office is 12.5% of the house and I'm 50% owner, so simplified, it is.  Thank you for the explanation. That helps a lot.