If I’m adding a separate space to my home to use as a home office, can I use the business to pay for it? Or deduct it at the end of the year?
Unless you are "in the business" of buying and selling real estate, it's not deductible per-se. Basically, real estate used in the production of income on a continuing basis is an asset that gets depreciated over time. Regardless of weather you pay for it with business funds or personal funds, the cost is depreciated over time. For a home office it's depreciated over 39 years.
Typically, whatever you pay to add on to your existing primary residence adds to the cost basis of that primary residence as a whole. That cost basis has nothing to do with your business and nothing do to with how it gets paid for. If the add on to the structure is used 100% for business then while the cost still adds to the total cost basis of the house as a whole, you can also depreciate that actual cost of the add-on over 39 years.
Also understand that depreciation is not a permanent deductions. At some point that depreciation has to be accounted for.
For example, if you sell the property in the future then all depreciation taken is recaptured and taxed in the tax year you sell the property. Two things happen with recaptured depreciation.
1) Recaptured depreciation is added to your AGI for the tax year you sell, and has the potential to bump you into the next higher tax bracket. Weather that happens or not just depends on the numbers.
2) Recaptured depreciation is taxed anywhere from 0% to a maximum of 25%. But again, what tax you pay on that recaptured depreciation depends on the numbers.
Some may have the impression that if they don't depreciate the asset, then they don't have to recapture and pay tax on it. That's just not so. When you sell the property you are required to recapture the higher of the depreciation taken, or the depreciation you *should* have taken. So if you don't depreciate the asset it's like a double-whammy when you sell the property. Even worse if your state also taxes personal income and requires you to depreciate business assets.
