Outbuilding on my personal property converted into Commercial Use for my small business - How to list improvements?

[redheadsrock82]

I have a small business with a home office in my home. In 2019 I did some improvements to a separate structure outbuilding on my property and turned it into a shop also for my business. As far as I understand, for my home office I combined the square footage of the room in my house and the outbuilding, as my total home office square footage. Also, the total improvements I did to the outbuilding were above the $10,000 limit for the Safe Harbor Election for Small Taxpayers so I'm planning on depreciating them instead of listing them as an expense. Would I list the improvements as one total cost under one asset - Real Estate Property - Qualified Improvement property? Or do I need to list them individually? And do I need to add the outbuilding itself as an asset also? Not sure of the value since it was on the land purchased with my home. Any help would be appreciated, thanks!

[KarenM90]

Yes, you are correct on all points.

Your business property will include the square footage of your office as well as your shop, as long as both are used 100% for business purposes.

If the improvements you made were all part of the building and not equipment, etc, then yes, you can list them as one item.  You generally don't want to combine anything that could be moved or detached and replaced.

Yes, the building would be a separate asset depreciated at the lower of cost or Fair Market Value when converted to your business use.  Sometimes a Property tax statement is a good place to start deciding on the value.

Here is more information on Qualified Improvements:  Qualified Improvements

[redheadsrock82]

Thank you so much for your reply. I do have a couple other questions:

• I'm getting the option to take Section 179 for the improvements to my outbuilding. I want to make sure all the improvements qualify for Section 179 and not miss something that needs to be depreciated. Most improvements were made inside but a couple things I'm wondering about would be the new garage doors and changing the framing of the outside wall around the garage doors to make them fit. So then would it be better for me to list these assets separately instead of one asset?
• And if any improvement that does not fall under the Section 179 but is under $2500, would that fall under De Minimis Safe Harbor? Do improvements fall under the De Minimis Safe Harbor at all?

Thanks again!

[JohnB5677]

Items under $2,500 can be written off based on the De Minimis Safe Harbor.

There are six categories of depreciable property that qualify for the Section 179 deduction: 

1. Tangible personal property: machinery and equipment; property contained in or attached to a building such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment and signs; gasoline storage tanks and pumps at retail service stations; livestock including horses, cattle, hogs, sheep, goats, mink, etc.; portable air conditioners or heaters (placed in service after 2015); certain property used predominantly to furnish lodging
2. Other tangible property: property that is (a) an integral part of manufacturing, production or extraction or of furnishing transportation, communications, electricity, gas, water or sewage disposal services (excludes buildings); (b) research facilities used in connection with activities in (a); or (c) a facility used in connection with any of the activities in (a) for the bulk storage of fungible commoditie
3. Single-purpose agricultural (livestock) or horticultural structure
4. Storage facilities used in connection with distributing petroleum or any primary product of petroleu
5. Off-the-shelf computer software such as Quickbooks or Microsoft Offic
6. Qualified Section 179 real property including improvements placed in service after non-residential real property was placed in service, such as heating, ventilation and air-conditioning; fire protection and alarm systems; security systems; roofs

Sorry, these are disqualified

As with other types of tax deductions and expenses, not everything counts. Here are the exceptions:

• Ineligible property
  • Building
  • Land
  • Trailers (non-mobile)
  • Fences
  • Docks
  • Swimming pools
  • Landscaping
  • Billboards (unless movable)

See the Original Article