Why do I not have a choice as to whether I want claim depreciation?

[rashley1]

I do not want to claim depreciation because (1) I would have to locate original records over 30 years old.  (2)  My home office was an addition in 2015, and (3) Given the small size of my home office compared to the whole house, the deduction would be very minimal (i.e., not worth the effort).  The program does not give me a choice!

[Carl]

That's because The IRS/Congress doesn't give you a choice. You lose either way.

If you take depreciation, then when you sell or otherwise dispose of depreciable property, you have to recapture that depreciation is the tax year you sell, and pay tax on it.

If you do not take depreciation, then when you sell or otherwise dispose of the property, you have to reduce your cost basis by the depreciation you "could" have taken. That increases your taxable gain. So you pay tax on it anyway.

While depreciation may be a choice, paying taxes on it is not. To me, it's double-taxation. But I don't make the laws.

[rashley1]

Thanks, Carl.  However, I was more interested in why the TurboTax program itself doesn't give you the option.  It seems to give you options on everything else.  Last year, my accountant did not include any depreciation in my home office expense.

[TaxGuyBill]

Did you take the "Simplified Method" last year?

Look at Line 30 of your Schedule C from last year.  In the paragraph next to Line 30, are the two blanks filled out?

[Carl]

Even with a home office, depreciation is not a choice really. But for a home office (and only a home office) you can take a "simplified deduction" that has limits. So if you're claiming a home office, you have to take depreciation one way or the other. So the only legal way your accountant could have not taken depreciation, either straight line or the simplified method, is if you did not claim a home office.

[TaxGuyBill]

Carl, the Simplified Method does not have depreciation.

[Carl]

But the simplified method is "in leiu of" depreciation right? You have to take one or the other as I understand it. Also, as I understand it, even with the simplified method, you have to recapture it when you dispose of the asset, right? Or am I interpreting it wrong?

[TaxGuyBill]

Yes, it is "in leiu of" actual expenses and can only take one or the other.  However, it does not lower your basis and there is nothing to recapture.

[Carl]

Ah I see. So instead of taking the depreciation and itemizing the other home office deductions, one can take the "standard home office deduction" as an expense, and that's all it is then.... and expense.

[rashley1]

On Line 30 Schedule C from last year, blanks are empty.  My account used the "long method", filled out Form 8829 but Part III of the form empty.  So, no depreciation was claimed.

[rashley1]

According to my calculations, taking the $5 per s.f. simplified method last year would have resulted in a greater deduction for me than his method without depreciation.  I think I will run the numbers with my household expenses for this year and see how it compares with last year's number and this year's number using the simplified method.

[TaxGuyBill]

If you tax preparer took the Actual Expenses but not depreciation, he messed up.  As Carl said, it is not an option.

[re2boys]

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