Depreciation on home office for dog business in home with prior rental depreciation

[LuLuna]

I use one room in my home for my dog boarding business, and I also rent out another room part time. I have previous depreciation from renting the entire house, along with several improvements from when it was a rental, and some when it was personal use only.
How do I enter the asset of a home for my dog business when it asks when I first used it in "this business." If I enter 2023 there's no place for prior depreciation. If I enter an earlier date when I didn't even have the dog business, it asked what method I used for home office expenses in 2022, and eventually asks for date acquired, date in service, and prior depreciation.
If I enter 2011 as the year in service (when I bought the house), it says I'm on year 12 of depreciation. It won't let me edit that if I switch to forms view. It does let me enter the correct amount of prior depreciation.

None of this is accurate. The prior rental depreciation life was at 27.5 years, and now the home office is at 39 years. I also used the home for personal use several of those years.
What should I do?

Percentage of business use?

TT asks what percentage of my business income is from use of my home office. I had only used the small percent % of my income that comes from clients that I visit at their homes.

I use this room only for my dog boarding business, but the dogs also hang out in the rest of the house and the yard, and we take walks in the park etc...I'm confused now what percent of use this means. 

Any clarification appreciated

[DianeW777]

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.

[LuLuna]

Thank you for your help

New Question/Issue
While diving into TT,  it asks how much of your business is conducted in your home office. Percentage of income comes from use of home office?

I use this room only for my dog boarding business, but the dogs also hang out in the rest of the house and the yard, and we take walks in the park etc...I'm confused now what percent of use this means. I had only subtracted the small percent % of my income that comes from clients that I visit at their homes.

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.

So in this case it is OK to minus depreciation taken for the original costs?
Looks like I can ignore land and land improvements?

Take the home office square feet divided by the total square feet of the home to arrive at the business use percentage.

TT says if you rent a portion of your home you need to minus out parts of square footage rented out exclusively. This will be a pain because I only rent out a room a percentage of the year. I guess I can do each month individually and divide by 12?

I'm tempted to give up and use the simplified method, but my income is too low to benefit from itemizing deductions of mortgage interest and property tax, so I'm trying to see if I can do it this way.

[DianeW777]

The office percent is what is allowed for any house related expenses for the office. The fact that you allow the dogs in the rest of the house, or the yard, is not something that would create a bigger expense for your office. 

• Direct expenses for the dogs is allowed to be deducted 100% for your business.  

So in this case it is OK to minus depreciation taken for the original costs? Yes, as indicated earlier.
Looks like I can ignore land and land improvements? - Yes or add them together to enter your land figure only if included in the total cost entered for the home.

You may have a better deduction using the simplified method. The nice part about this is that there will be no depreciation recapture when you sell later.

It's normal for an office percentage to be low in comparison to the whole house, which is what is required for actual expenses.

@LuLuna 

[LuLuna]

thanks for your help

The office percent is what is allowed for any house related expenses for the office. The fact that you allow the dogs in the rest of the house, or the yard, is not something that would create a bigger expense for your office. 
I was actually concerned about the opposite, less of a deduction. For the home office entries, in forms view TT asks what percentage of my gross business income is from business us of home. In steps mode TT asks what percentage of time I spend conducting business in my home office. It says it impacts allowable home office deduction. 

I had only put the percentage of my income from dog visits to other peoples homes. Wasn't sure about all the time I spend with the dogs outside of the home office room.

Simplified method... I love the idea of no depreciation recapture, but because I don't itemize my mortgage and property tax deductions, the simplified method is a much smaller deduction, but maybe the headache should be added as an expense 😉

[DianeW777]

Yes, time of use  does impact it, and you have already indicated there are days of use that are not business.  Your home office should be a space that is strictly limited to your business in which case it would be 100% unless you do not conduct your business all year. This may be where the confusion is.

Understood about the simplified method.

[LuLuna]

Sorry that this is confusing. The office/room I only use it 100% for the dog business. Nothing else.

What confused me was TurboTax asking me how much of the business is conducted elsewhere. That is why I brought up using the rest of the house and the yard, wondering how to account for how much time I spend in the office room.

turbotax used an example of a plumber who does their office work and calls clients from home, but then spends 40% of their time going to people's homes. 

maybe I'm missing something here

[AmyC]

Time in the home office is up to you. Take a look at your typical week and what you do in the room. How long does it take over a week in comparison to your other dog activities?

Since just the one room is strictly business, you can claim it as a home office using the simplified method or the actual expenses with the depreciation. I would say your situation  is similar to day care where the kids run around but child care has special allowances due to the nature of the work that you are not privileged to receive. The other spaces in your home may receive wear and tear but they are not exclusive to the business. It is the cost of doing business.

I'm with Diane, simplified method for the home office is a great solution for you.

[LuLuna]

thank you for your input. 

I am not looking for any extra deduction from the use of the rest of the house or yard, I was concerned given the questions that TT asks, that it made the business use of the room a smaller percentage. It asks the questions in two different ways that confused me, one had to do with percentage of income, one other place it reworded it as percentage of time. I use the room for invoicing, supplies, and crating the dogs. 

The majority of time I am in the rest of the house/yard.

If I take the simplified method, I will be losing a lot of the deduction, since I can't use interest and property tax on schedule A. does the simplified method also require the same questions for business use? 

thank you for your help

[DMarkM1]

No.  The simplified method for a home office deduction does not ask for business use time/percentage. It is simply $5/square foot of business space.  Here is a link with more information. 

[LuLuna]

thank you for your reply and for the link. I looked into it in more detail, and the simplified method looks like it has the same time ratio requirement as actual expenses. 

https://www.irs.gov/businesses/small-businesses-self-employed/faqs-simplified-method-for-home-office...

[PatriciaV]

The Simplified Method is based on the number of months you use the home office at least 15 days out of the month. The percentage of your entire home is only used for the actual expenses method.

Example:

Home office = 300 sq ft

Use the home office for any period of time every weekday (20 days/month) for 9 out of 12 months = 75%

Simple Method = 300 sq ft x 75% = 225 x $5 = $1,125