In previous years I took actual expenses for business use of home. In 2021 I want to use the simplified method. I rent not own a house. Do i recapture deprecation?

[confusedabouttaxes23]

Again I rent but don't own a house. I read online about recapturing deprecation. Does this apply to me? Can I just make the switch?

[MaryK4]

When you sell the home you depreciated, you must add the depreciation (recapture) when determining the gain on the sale of the house.  If you have not sold the house yet, you do not have to do this yet.

You can go ahead and use the simplified method this year,

[Carl]

Since you do not own the property you live in where you are claiming a home office, depreciation is not an option. You can't depreciate property that you do not own. So you continue using actual expenses, which would include (if I recall correctly) a percentage of the rent you pay that applies to the percentage of rented floor space which you claim as a home office.

[confusedabouttaxes23]

So I cannot switch at all just because I rent my apt instead of own a house. I never took the deprecation because its an apartment. So does this deprecation even apply to me because I never did that in the past? 

[confusedabouttaxes23]

It is an apt not a house so I rent. So in actual method I never used deprecation as it was not even an option I think. So does switching means this issue does not even apply to me?

[GeorgeM777]

No, depreciation does not apply in your tax situation, therefore, you are correct.  Moreover, the fact that you did not take depreciation in the past is also correct because if you do not own the property (whether it is an apartment, condominium, or house) you cannot take depreciation.  

You are correct again in that switching is not an option for you.  However, you can deduct your rent as a business expense provided you use the entire apartment for your business.  If you only use part of the apartment for your business, then determine what percentage of the apartment you use exclusively for your business, and use that same percentage when figuring how much of the rent, utilities, and other apartment cost you can deduct as a business expense.  

@ConfusedAboutTaxes

[confusedabouttaxes23]

@GeorgeM777 

Why is simplified method not an option for me but actual is? Simplified is just $5 per square foot times Square foot of business use space up to 300 square feet limit. You cant use your entire apartment for business use of home. This is for business use of home not renting it out as business if that is what you thought. I read that I can make a switch from one year to another. You just can't change it in that same year like Jan use actual method Feb switch to simplified then switch back again in March same year for example. Since I did not take depreciation because I rent not own does this part of even apply to me? 

[PattiF]

This IRS article says that you may choose to use either the simplified method or the regular method for any taxable year. You are able to choose the method for the home office deduction. Depreciation does not apply to your situation as a renter.

[confusedabouttaxes23]

So because I rent and not own the part about depreciation when switching from actual to simplified business use of home does not apply to me? Correct?

[PatriciaV]

Yes, the IRS does not require you to own the home in order to use the Simplified Method. Further, because you don't own the home, you've never taken depreciation, so the issue of depreciation recapture is not relevant to your situation.

[confusedabouttaxes23]

So I can make the switch from actual to simplified method of business use of home from 2020 to 2021 because I can make a switch from year to year just not on that year? And since I rent I never took depreciation so it does not even apply to me about recapturing it? Just double checking. Thanks!

[PattiF · Accepted solution]

Yes, you can switch back and forth between actual expenses to the simplified method for business use of home from year to year. You have to use the same method all year. But, you can use a different method next year if you like.

[confusedabouttaxes23]

@PattiF @PatriciaV @GeorgeM777 @Carl @MaryK4 

Sorry just thought of another question. Can I use Simplified business use of home if my apt rent is less than the $5 sq foot that is allowed by IRS? I was looking online and many apartments in my area and outside my state are less than $5 per sq foot. So is that allowed or do I need to use actual method just because my apt is less than $5 per sq foot?

[Carl]

Yes, you can use the simplified method. But do take note of all of the highlights (every one of them) of the simplified method at https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-dedu...

Basically, when you switch from the normal depreciation method, it's up to you to keep track of depreciation already taken using that method, as the program will not (and can not) track it for you. This will come into play in the year you move or dispose of the business.

One nice thing about the simplified method for a renter that does not own their home, is that there's no depreciation recapture to deal with provided you used the simplified method every year since opening the business/claiming the home office.

[confusedabouttaxes23]

@Carl 

I rent so I can't depreciate. But what confused me was my apt rent less than $5 per sq foot so can I use the simple method? Many apt are less than $5 so I assume this is OK to use because irs does not expect people to only use if they pay more than $5 per sq foot for rent. So can I use simple method if my rent is less than $5 per sq foot