Last Year used Simplified Home Office Deduction, Dont want to Use Deduction again

[planetm69]

Last year I used the Simplified Office Deduction. Is it true that we have to pay Capital Gains on a % of the profit if we ever sell? We are on the lower end of income so not sure if it is affected by income or purely sale of property? 

If we do decide we no longer wish to claim Simplified Office Deduction, how do we tackle that for next return? I don't see dates of office use on our filed return (the form asked us for the dates the office was in use). How do we note we no longer want the deduction? Is simply not claiming the deduction enough to end the depreciation?

Thank you for your help!

[tagteam]

See https://www.irs.gov/businesses/small-businesses-self-employed/faqs-simplified-method-for-home-office...

Of course you can stop taking the deduction in future years if you desire to do so.

See also https://www.irs.gov/irb/2013-06_IRB#RP-2013-13

There is a worksheet to figure the deduction (See https://www.irs.gov/publications/p587#en_US_2022_publink10003635)

[AmeliesUncle · Accepted solution]

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@planetm69 wrote:

Last year I used the Simplified Office Deduction. Is it true that we have to pay Capital Gains on a % of the profit if we ever sell?

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Assuming your office is not a separate building, no, your home office deduction using the Simplified Method has no effect when the home is sold.

Actually, the opposite is partly true - if you use Actual Expenses for your home office, there likely will be some tax consequences when it is sold due to depreciation.  However, the tax-savings now are almost always larger than the eventual tax-cost when you sell.

[planetm69]

OK. That is good to know!

A couple more questions if that's OK?

What is we decide to build and use a small shed for our home office that IS separate? How does that affect things in terms of using simplified method? Capital gains when we sell?

Also, my husband and I plant to have a joint business. Will it still be possible to Deduct home office if we share the office for same business AND use simplified methodI? If so, how do we split the cost of the home office? 

[AmeliesUncle]

I think the Simplified Method can still be used if you use a separate structure for your home office.

Having a separate structure for your home office WILL prorate your home sale, and the business portion would not be eligible to be excluded under the $250,000/$500,000 Principal Residence exclusion.  Whether you use Simplified or Actual does not change that.

Yes, you can share a home office, as long as there is only used for qualifying purposes.  If the office is shared 50%/50%, then EACH business can either (a) enter half the cost of all expenses (mortgage interest, utilities, etc.) and the full amount of square footage, or (b) the full cost of all expenses, and half of the square footage.  But be aware of the 300 square foot limit if you use Simplified.   I'm unsure how TurboTax deals with applying the mortgage interest and real estate taxes for your personal portion, so perhaps method (a) would prevent any potential problems with the program trying to double-apply things for your personal portion.