Yes, here is what to do. This is going to be a paper trail for you because of the many different uses of the property. This is not something that can be handled in the tax software.
For the dog business home office use the following information to arrive at a cost basis for the entire home, then use business percentage to arrive at a fair and logical depreciation.
- Original cost (from rental period), including any capital improvements (not repairs) less all depreciation used on your tax returns in prior years = the cost basis to use when completing your home office expense.
- Take the home office square feet divided by the total square feet of the home to arrive at the business use percentage.
You are correct, the home office is considered 'nonresidential property' and must be depreciated over 39 years.
Keep all prior tax returns that show the depreciation used for all purposes. This will be very important when you sell the home later.
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