Moved midyear - home office deduction

[mgarvin]

So, move in March to a new home. Both new and old home have a home office. What I noted was that as soon as I added the second home office (and allocated per the instructions here - https://ttlc.intuit.com/turbotax-support/en-us/help-article/expense-accounting/allocate-expenses-two...), indicating that the home offices were used 25%/75% respectively, the tax liability increased significantly (by about $3000). 

On the old home, there was a significant carryover  of prior year operating expenses. Could that be the reason for this huge swing? Mostly wanting to make sure I'm not inadvertently shorting myself a deduction I should be able to take, but can't convince TurboTax to set it up properly. Any help would be greatly appreciated!

[RobertB4444]

There is no carryover with the home office deduction.  That's a use-it-or-lose-it deduction.  The only thing I can think is that your home office deduction for the old house was significantly higher than the deduction for the new house.  If your actual expenses at the old house were a lot higher than the new one that could be part of the problem.  If you are using the simplified method you should note that only one of the offices can use that and if you used it on the 25% office then the second office would have a significantly lower deduction unless the actual expenses are pretty high.

Walk back through the home office section and adjust which house takes the simplified method and make certain that all of your expenses are entered.  If you're following those instructions then you're doing it correctly so there is definitely a data entry disconnect here.

@mgarvin 

[mgarvin]

Thank you @RobertB4444 for the assistance.

Regarding carryover, I'm confused - I have used TT for years and the carryover of expenses from that business (primarily home office expenses) has come over automatically every year - starting in 2018 it put excess deductions on my Form 8829 (line 43), which of course was taken into 2019 and so on. Am  I misunderstanding how that works? Is it that I can carry it over until that home office is no longer in use, as is the case here?

In terms of actual expenses, the new home office occupies a lower % of the home but the expenses this past year for the whole home are much higher (whole lot of repairs). 

Lastly, it does not appear that either home is using the simplified method. Changing it on the 8829 for either home increases the tax due significantly.

[RobertB4444]

No, actual expenses can be carried forward, just not the simplified method.  Since you are using actual expenses then you will need to show a disposition of the first home office in order to take all of those carried over expenses before using the second home office.  Go through the disposition section and recapture the depreciation and you will be able to use the suspended deductions and can then start using the second home office.

@mgarvin 

[mgarvin]

@RobertB4444 ok that's great news, thank you for clarifying. Forgive my naivete - I can't for the life of me figure out, either on the Form 8829 or through the TT step-by-step, how I'd go about the disposition of the home office. The home was not sold (in both cases, new and old, they were rentals), if that matters.

Would I potentially just pull the carryover off the old home office 8829 and put it instead onto the new? Would I divide it in some way between the two?

[RobertB4444]

If they were both rentals then you won't dispose of it at all.  Sorry, I should have asked.  I just assumed you had some depreciation in there.  

So, your math just got a little harder.  Your home office isn't going to change.  Because it's a rental the only thing that is going to change is the amount of the deduction allowed for each office.  You need to figure the amount of the actual expenses for the first three months at the old office and then the amount of the expenses in the 9 months at the new office and then you add them in.  Then, for this year only, figure the square footage of your home office by percentage and work out the home office deduction based on that.  (Take the percentage of the house used by the old office and multiply by three, the percentage of the house used by the new home office and multiply by nine.  Add all together and divide by 12 to get the percentage for this year.)

@mgarvin 

[mgarvin]

Thank you. I realize my response was a bit muddled (lack of sleep) and I misspoke. I don't think it changes the answer, but the new home was in fact purchased.  96% of the income for the year was made in the new home.

Since I did purchase the home, I assume I do need to put in a second 8829 so I can start capturing depreciation on the home and the home improvements made.

I see three possible solutions:

A  - pull all carryover on the old home (this is the least tax advantageous to me, resulting in a tax due)

B - split it 25%/75% between old home and new, reflecting split of time spent between two

C - put it entirely into new home 8829. (most tax advantageous for me)

I can find no guidance in the 8829 instructions and am at a bit of a loss on how to proceed. 

@RobertB4444