Changing Business Use Percentage of Home Office

[JGT25741]

I have a Home office that has 100% use for business but in prior years it was less.    I need to fix my current return to reflect accurate usage and obtain proper deductions.     Turbotax has my existing lower percentage from prior year greyed out in the box, and I cannot edit it.   It explains that I cannot change this on prior returns as it would need to be amended.  I get this, but I am simply trying to adjust the business use percentage with the current return and it wont let me.       Is this a limitation of the online version?      If so what minimum version do I need to make this change.   It seems strange I would never get to change business use percentage of any asset with the online premier version.  I  must be doing something wrong?     Any help or  workaround preferably with the online version would be greatly appreciated. 

[ZoltanB45]

In the self-employment section, under expenses, you will see Home Office. Put that in the trash. Then you can add more expenses, including  a new home office entry. There, you will make the changes needed.

[JGT25741]

There is no self-employment section in online premier version.   My home office information resides under Expenses in the Deductions and Credits category.      I can delete my home office and create a new one.    But this will delete the entire depreciation history (it says it would if I attempt this).   Creating a new Home office would setup an entirely new depreciation on the property and report this back to the IRS.   This will have new tax implications for me when I sell the house   I am not sure this what I am supposed to be doing here, recreating a new office depreciation schedule. 

I am simply trying to modify my current business usage % to reflect actual usage of the asset ( and associated items in the office) .    

I hope you can explain with more clarity please.  

Thanks very much

Jim

[ZoltanB45]

Adding another home office schedule will not affect anything when you sell the home.  At the time of sale, you deduct all of the depreciation take for the item (house) to get the basis.

 When you make an improvement to a house, you capitalize it. You add a new depreciable item and depreciate it from there. You don't have to change the value of the home in the books after depreciating it for 10 years to set up a new depreciation schedule for the home. You are allowed to add improvements on a separate line. Same thing here. Add a new home office with the numbers you want and disregard the other home office. The Accumulated depreciation will be there.

[JGT25741]

Hello Zoltan, 

Thanks for sticking with me on this I greatly appreciate your help.     For my situation the existing office seems to have a existing depreciation value of $0 according to turbotax screen.  So it seems to be fully depreciated.   

So when I add a new office, it doesnt seem to allow me to create a fully depreciated office space, rather it wants to have me start from scratch with some default new schedule based on the size, cost of home and year purchased (same initial dialog as before).       

1)  Question for you...How can I make sure it is fully depreciated at the start or the schedules match up?    

2)  Are you sure it will ask me the business usage percentage now or will it still default to whatever was used in my last office in my prior year?   I ask because I added a 2nd office space and thinking it should be independent of the first.....and it still forced the same Business Usage percentage from other Office space (a bug ?)

Thank you very much again   

Jim

[JGT25741]

Well Zoltan,

I suppose I misunderstood this parameter from the beginning.    Looking at FORM 8829 which I presume would govern the kinds of behavior the screens are showing on my view, it seems that except in the case of a Daycare facility, the Business Use Percentage of the Office will match the percentage of the office space to the Home.   This seems like a strange model to force, but it is what the form says if I am  reading it right?  

So an example of a 250 sq ft room in a 2500 sq ft House would be 10% of the Floor space, and 10% Business usage.

If I was just as busy and used the office just as much but had a:

500 sq room (2X as large office) in a 2500 sq ft House  , I would get 20% Business Utilization and a better tax break.

Doesnt seem right to me.   So is that why my Box is greyed out and I cannot change it?

Jim

[ZoltanB45]

Business use percentage of the home (not office) equals the office space to home percentage. The greater the office square footage to home square footage ratio is, the higher the deduction. It is quite unusual for the home office square footage to change from year to year, so it is assumed it is the same. That is why it is greyed out. Like I said you can just add another office and not use the old one.

[JGT25741]

"Business use percentage of the home (not office) equals the office space to home percentage."

The office use business change is the point I have been attempting to focus on in this thread and trying to figure out where to make the change in Turbotax to reflect it.  I still have not been able to make this change.   Nobody on the phones can help with that as they barely understand their own product and have no escalation path to offer me after calling 4 times and trying 4 people.   I am not getting any specific product advice here either.    Zoltan, you  clearly understand the Tax code and how this all works in theory, but how it translates to my problem with Turbotax is where my issue exists is the problem.    It appears it is the business use percentage of the home per my example and that is what Turbotax is using, and it seems to be flawed and a bug nobody cares to fix.    Somebody should care enough to understand what I am saying, look at your program and verify that it is either doing it correctly --- or is a problem.  As of right now...I am still unsure, but have low confidence iits producing my favorable tax return.    

Unless I get somekind of closure on this... I will change software next year.

Sincerely

Jim

[Carl]

I get this, but I am simply trying to adjust the business use percentage with the current return and it wont let me.

That is right, as changing it will completely screw up and skew the depreciation history, meaning that all future depreciation would be wrong too.

Any help or workaround preferably with the online version would be greatly appreciated.

What you need to do, is to show that home office as converted to personal use or whatever, so that it is no longer a home office. If I recall, you have to select YES where you're asked if you stopped using that asset in 2021. This is the only way to get the total depreciation taken on the asset, since it was placed in service.

Next, you have to create a completely new home office with an in service date of at least one day after you took the old home office out of service. For the "new" home office, you have to reduce the cost basis by the amount of depreciation already taken on the old home office. Depreciation will start over using the newly adjusted and lower cost basis. 

So your 2021 tax return will have two home offices on it. The old one to show it's no longer used, and the new one with the changed business use percentage. Also, take note of the following:

- Percentage of *TIME* this home office is used for business - Must be 100% business use. Anything less, and you don't qualify for the HO deduction.

 - Percentage of *BUSINESS* conducted in the home office - May be less than 100% with no problem. Your depreciation deduction is based on a combination of square footage of your residence used as a home office, and percentage of your business that you actually conduct in that home office.

[JGT25741]

@Carl , Thank you!   This makes complete sense to me and I greatly appreciate your help .    I think this may work for the online version, as I do recall that question being asked...and if that is the way to terminate the office and start the new one this is fine.   The old office was actually fully depreciated, so I will take note of the depreciation listed and copy it over.    The new schedule should continue at zero if it allows that entry.     One question I have for you if you can answer it.   Where in the actual IRS forms does the information reside for the:  

"Percentage of *TIME* this home office is used for business - Must be 100% business use"

I would really like to understand in what form and where this above information resides so I can better picture its context here.  

Thank you again for providing the much needed clarity for me.

Sincerely,

Jim

[Carl]

The old office was actually fully depreciated, so I will take note of the depreciation listed and copy it over.

I'm curious, as I don't see how. Unless maybe, I'm not aware of something pertaining to the depreciation of business real estate as it pertains to a home office?

Typically, business real estate is depreciated over 39 years. So unless you have been in business for a minimum of 39 years in the same location, I'd really like to know how it's possible to be fully depreciated.  Please educate me on that, as I'm not being sarcastic here. I'd like to know how it's possible.

[JGT25741]

@Carl I based my comment not on anything more than the Turbotax screen that showed the Home office Asset Summary.     The headings are, Placed in Service: Section 179: Special Depreciation: Depreciation.   Currently the only values that are populated under each of those headings are the "Placed in Service" which was 3/16/2003, and "Depreciation" which is "$0".      So I am reading it is either fully depreciated or nothing has been depreciated.    No other details are given here.       

What is your understanding based on this?

Any comment on my question posed earlier as well on the location of that info in the Tax forms?    

Thanks again Carl. 

[Carl]

To confirm things, you need to print out the Form 4562 and look at it. The one from last year's tax return will probably be fine, if you started claiming the home office prior to 2020.

The specific form 4562 you want is the one that prints in landscape format and is titled "Depreciation and Amortization Report". One of the assets listed will be (should be) your home office. If you took a SEC 179 deduction (which I generally discourage, but to each their own as I'm not an expert and make no claims as such) then for that asset there should be an amount under the "Section 179" column, and the columns for current year and prior years depreciation should be blank, or contain zeros.

If you have fully depreciated the asset, you can not depreciate it again - especially if you took the SEC179 depreciation deduction in the first year you placed it in service. But let me know what you confirm on the 4562 first, and let me know what the percentage changed from, and then changed to in 2021.

[JGT25741]

@Carl , you are right it wasnt fully depreciated.    I printed everything out with all the tables and forms to see the detail under the covers.     Things are clearer to me now.  It makes sense the Business use % is greyed out as this number is only applied to the depreciation of the house portion the office represents, and the utilities and taxes/motgage the office represents all by the same fraction.  I was worried that other items I itemized later relating to the job were assigned to the office and would get the 10% treatment but I see those are getting 100% value.   The Depreciation this year was $1132 for the office so it is not non-zero and was carried through.   Thanks for helping me understand and working through this. Now if Turbotax did it all right....well I hope so ....gulp... much is still beyond my understanding but that is why I buy this service:)   But I bought the Max plan for whatever that is worth.   So I will leave the existing schedule alone and just submit.   Take care and thanks again for lending a hand. 

[LEGNARN]

I totally agree Turbo Tax does not fix this and no one knows how to handle this. As a matter of fact, they really dont fix any of there screw ups. However, in the past, I have used two offices, but one will be 0 percent of the year for 12 month more than 15 days of the year. This home office is where the depreciation lies. The next home office is the one I use 100 percent of the time... same sq feet for each, but no expenses or improvements to the first (original) office, only on second. When the offices translate into line items on taxes, depreciation from past year will add from Office 1 and it will not have any depreciation this year that will be office 2....so the outcome will be past years depreciation plus new depreciation, which is right. Next tax season, you depreciation will be lumped together bc you used homw office 0% of time and the other 100%. This will also work out for any excess casualty and depreciation and NOL, which is section IV of 8829