Home office depreciation deduction

[thegriffingang]

I have a small home-based project management business and have, for the last 7 years, claimed a home office deduction on my taxes for contractual work I do via a 1099-MISC. In 2019 we sold our house and need to report that sale on our taxes. The TurboTax Home & Business software is asking me to list "home office depreciation deductions taken on this home" to adjust the cost basis for the home sale. I'm not certain where on my printed previous years' tax forms I can find that deducted amount and/or if I claimed it. Is there a specific line, on a specific form, that would have that amount for each year's tax return?

[GiseleD]

It depends on what method you used. There's two ways to claim the home office deduction. You can take a deduction for the percentage of the actual expenses that pertain to the home office (the regular method), or you can use the simplified method. If you used the simplified method, you took no depreciation. Below is some more information about the simplified method per Rev. Proc. 2013-13 (PDF):

• Taxpayers can elect to calculate the deduction for using a home office for business under the simplified method rather than deduct actual expenses.
• The simplified method is calculated by multiplying $5 by the square footage of the area in the home used for business.
• The maximum area allowed under the simplified method is 300 square feet.
• The simplified method simplifies recordkeeping and substantiation rules. Taxpayers do not have to separately keep track of the actual cost of utilities, maintenance, repairs, depreciation, etc.
• When the home is sold, depreciation recapture does not apply for the period of time the simplified method was used.

If you don't know off the top of your head which method you used, you can check by reviewing your Schedule C forms. The line numbers may have changed over the years, but you will be looking for Expenses for Business Use of Your Home (line 30 in 2019). This line will tell you if you took the simplified method or the regular method.

So let's say you took the simplified method in 2019. Easy--no depreciation was taken for the home office, and you will indicate this accordingly in the software. 

However, if you find that you used the regular method, the next thing to do is look for Form 8829 (Expenses for Business Use of Your Home). The line numbers may have changed over the years, but you will be looking for Depreciation allowable (line 42 in 2019). Once you get that number for each year, add it up, and that will be the amount of depreciation deductions you took. 

Now, if you discover that you used the regular method but neglected to take depreciation in any year, please reply back with details. That is a special situation that requires a very specific approach. 

[thegriffingang]

Can't thank you enough for your response - it really helped! I know for each year I've always done the regular method. I have the amounts of depreciation allowed for each year (Line 42 or thereabouts), from each Form 8829. BUT I don't know how to tell if I actually took the depreciation each year. Can you advise where that would be?

Again, many thanks!

[ColeenD3]

You can look on a depreciation worksheet or on your Form 8829, Line 42.

"42 Depreciation allowable (see instructions). Multiply line 40 by line 41. Enter here and on line 30 above."

You will have to do some math or look back at every Form 8829 to see if it was taken.

Regardless of whether you actually took it each year or not, it has to be recaptured.

[thegriffingang]

Thank you for your response! I am trying to discover where on each year's 1040 forms I can see if I've taken the home office depreciation deduction for years 2013-2018. I see the calculated amounts on each year's Form 8829 but I cannot figure out how to determine if I then claimed that on each year's return.

A previous responder said that if I haven't yet claimed those depreciation deductions, different rules apply. Are you saying that, regardless of if I've claimed it before (which is what I'm trying to determine), in order to calculate the adjusted cost basis of my home sale I need to enter those 2013-2018 amounts again in the TurboTax prompt that asks me to enter "depreciation taken on this home" on this year's return?

[ThomasM125]

Your depreciation deduction for your home office would be combined with your other allowable home office deductions and show up on line 30 of your schedule C "Expenses for use of your home." The allowable depreciation would appear on line 42 of form 8826. 

It is true that you would have to enter the depreciation allowable on your home office when calculating the taxable gain on the sale of your home, even if you did not deduct the depreciation.

[thegriffingang]

THANK YOU! That helps a lot. So regardless of what I've done on every year's taxes since I've had the home business re: reporting the deduction, for 2019 as I report the sale of my home and am calculating my gain/loss (ours is a loss), I will enter the amounts from every year's Form 8829 that lists "depreciation allowable" on that portion of the TurboTax program. 

I appreciate everyone's help immensely!

[professormf]

Regarding the home depreciation as part of the adjusted cost, if I use the simple method and multiply $5 by the square feet of my office, do I add or subtract that amount from the costs for the home to determine the adjusted cost?

[professormf]

If the total amount of my deductions do not exceed $27,000, do I need to just use the standard deduction and not itemize? Do I only need to file the short form?

[professormf]

Does an energy efficient electrical heat and air conditioner qualify for an energy deduction?

[KathrynG3]

1. Regarding the home depreciation as part of the adjusted cost, if I use the simple method and multiply $5 by the square feet of my office, do I add or subtract that amount from the costs for the home to determine the adjusted cost? 
   1. If you used the simplified method, you do not have to recapture the depreciation whatsoever
2. If the total amount of my deductions do not exceed $27,000, do I need to just use the standard deduction and not itemize? Do I only need to file the short form?
   1. Please see this article about standard deduction v. itemized deductions.
   2. You may be referring to a state option. But, for the federal, the options for 2019 are Form 1040 or Form 1040-SR
3. Does an energy efficient electrical heat and air conditioner qualify for an energy deduction?
   1. It depends. The credit is limited if you have previously claimed it. Please see these resources for more details:
      1. IRS 2019 Instructions for Form 5996 Residential Energy Credit
      2. Energy Efficient Products
      3. TurboTax quick overview of Energy Tax Credit for Home Improvements

[stwek]

Hi,

We sold a home we had business depreciation on. Then purchased a new home, also used for business. Isn't this a like exchange? Doesn't business home depreciation get to new business home somehow?  what do I do?

Wendy

[JamesG1]

The sale of the business portion of the property may be reported under Sale of Business Property.

• Down the left side of the screen, click  Federal.
• Down the left side of the screen, click Wages & Income.
• Scroll down to Other Business Situations.  Click Show more.
• To the right of Sale of Business Property, click Start / Revisit.

At the screen Any Other Property Sales, you may select Any additional like-kind exchanges if the trade will qualify for that treatment.

At the screen Sales of Business or Rental Property, enter Depreciation taken on this property.

See information here and here concerning like-kind exchanges and the qualified intermediary to oversee the transaction.

[Edited 3/21/2023 | 8:01 am PST]

@stwek