Can I take home office depreciation AND the nonbusiness energy property credit for the same improvement?

[Contamine]

I have a home office in my home and am used to taking home depreciation on Form 8829 including depreciation on improvements to the whole house (prorated by square footage of course). Last year, I had a heat pump water heater installed for the whole house and would like to include it on Form 5695 for the non-business energy property credit. But this leaves me wondering, since the water heater was an improvement should or can I include it in my Form 8829 depreciation as well?

[Opus 17 · Accepted solution]

Yes, you can do both.  But, the value of the improvement to your home office will be based on the net price of the improvement (the hot water heater) after subtracting the energy efficiency credit (which is 26% of the cost if it is a solar water heater, and 10% of the cost up to $300 for a gas or electric heat pump water heater as long as it meets certain minimum efficiency standards.)

[KathrynG3]

In addition to @Opus 17 comments, note that Form 8829 is only for the Business Use of Your Home. It should have been calculated for only the area of your home that is exclusively dedicated to your home office. See: 2020 Instructions for Form 8829.

The residential energy credit is limited if the business office square footage is more than 20% of the home.

The 2020 Instructions for Form 5695 states on page 1: If less than 80% of the use of an item is for nonbusiness purposes, only that portion of the costs that is allocable to the nonbusiness use can be used to determine either credit.

[Contamine]

Responding to Opus 17:

Perfectly clear. I wondered if there might be some sort of basis adjustment required in that scenario. Many thanks!

[Contamine]

Responding to KathrynG3:

Yes, I understand that the basis for depreciation in Form 8829 is adjusted based on the square footage of the home office in relation to the whole home. Separately, your point about the percentage limitation as applied in Form 5695 is helpful to know, though in my situation the home office is only 10% of the home so I believe I am in the clear. Many thanks for the clarifications!