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Claiming Backyard Office as Business Asset

Background:

In April 2022, my wife and I (filing jointly) built a 200sqft shed on a concrete slab in our backyard and converted it into two separate 10x10ft offices with insulation, drywall, electricity, internet, and HVAC minisplits. This was initially done for our remote W-2 jobs, but I was laid off in Jan 2023, and have since been using my office 100% for my freelance self-employed graphic design business. My wife still uses her office for her W-2 job. I'd like to claim my office as a business asset as I have no intention of going back to a W-2 job. 

 

Questions:

  1. What is the best way to categorize this asset? I've read some people claiming these backyard offices as non-residential real estate property (with the 39yr depreciation), but others are claiming it as "Intangibles, Other property".
  2. If I claim it as "Intangibles, Other property", how do I determine the asset class life? I reviewed Publication 946 and don't see anything that fits this use-case. The shed is supposed to last 10-15 years with good maintenance, but the concrete would obviously last longer.
  3. If I claim this as a business asset, can I also claim it as Home Office Deduction, or would that be considered double-dipping? 
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1 Reply
PatriciaV
Employee Tax Expert

Claiming Backyard Office as Business Asset

It depends. If you use this space regularly and exclusively for your business, you can claim a Home Office Deduction for either your actual expenses or the standard rate of $5 per square foot ($1500 max). Using Actual Expenses does allow you to claim depreciation on the building.

 

Or you can report the construction cost for your half as a Business Asset for depreciation (commercial building) and also claim your related expenses. But you can't do both.

 

If the business owns the building, claiming it as a business asset is the more logical choice. But if you personally own the building, the Home Office deduction is more appropriate.

 

It is not an intangible, since it has a physical presence.

 

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