Does the Home Office expense have to be taken yearly once it is initially taken? and does it carry forward?

[casberg88]

Does the home office expense have to be taken yearly once it has been taken?  Then, does it carry forward if it's lowering a refund?  If one has two schedule C businesses and one is shutdown can one remove the home office and any future accounting when one sells the house in the future?  

Also, can one amend last years return to switch to simple from depreciation method? And do any of these increase risk of audit.

[ColeenD3]

1) No, you are not required to continue to have a Home Office.

2) You are not eligible for a Home Office Deduction from the current or prior years unless you have business income to offset the deduction. Your unused home office expenses will carry forward until you have a year with income.

3) Yes, you can delete the office but you will have to recapture any depreciation taken if you sell.

4) Please see this LINK for more information regarding Home Office deductions. If you were to amend, you would have to pay back all the depreciation you have already taken. You might as well leave it as it is. You can switch to the Simplified Method from here on out.

[casberg88]

@ColeenD3 I thought once you elected depreciation method you had to continually take it?

If you close down a business in 2020 that had a carry forward home office expense does it still carry forward to a different business on the schedule C in 2021?

[ColeenD3]

From the LINK I provided:

Q20.  What effect does using the simplified method have on the requirement to recapture depreciation when the home is subsequently sold at a gain?

A.  For taxable years in which the simplified method is used, the depreciation deduction allowable for the portion of the home used in a qualified business use is deemed to be zero.  Accordingly, you do not have to recapture any depreciation for taxable years in which you used the simplified method.  However, you may have to recapture depreciation for taxable years in which you used the standard method.

  How is the depreciation deduction calculated under the standard method for a taxable year following a year in which the simplified method is used?

A.  If you use the simplified method for one taxable year and use the standard method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table, even if you did not use the tables for the first year the property was used in business.  The optional depreciation tables for MACRS property are provided in the annual IRS Publication 946, How To Depreciate Property.

You figure the depreciation deduction for a subsequent year in which you use the standard method by determining the remaining adjusted depreciable basis allocable to the portion of the home used in a qualified business use, and then multiplying that basis by the annual depreciation rate for the applicable year specified in the appropriate optional depreciation table.  For this purpose, the applicable year is the year that corresponds with the current taxable year based on the placed-in-service year of the property

[casberg88]

@ColeenD3 Thank you my apologies for missing it in the link.

Then if you have 2 businesses on a schedule C and are splitting the home office deduction and shut one down does that portion of the home office deduction carry forward to 2021 as well even if that business was shut down in 2020?

[ColeenD3]

No problem! First a question? Are you filing two Forms 8829, one for each business? If so, the office that is deducted on one form will not transfer to the other form.

Yes, you can claim the same home office space if you have more than one Schedule C business, but you can't deduct the office expenses multiple times. You'll have to split this expense between the businesses so that you’re only claiming the total square footage space once on your return.

Here are a few examples of how you might choose to divide the space among your businesses:

• Divide it based on time.
  • For example, if you use your entire office for each of your businesses, but use it for one business 60% of the time and another for 40% of the time, you could divide the square feet of the space 60/40.
• Divide it based on space.
  • For example, if you have two businesses and one office measuring 100 square feet, you could enter 50 square feet for each business.
• Divide it based on a combination of time and space.
  • For example, you might have special equipment for one business that uses 50% of your office space. You use the other 50% for both businesses, splitting your time equally. As a result, you would enter 75% of your home office square footage for your first business and 25% for your second business.

Whatever method you choose, when you start entering home office expenses, enter the full amounts you paid during the time you used the space for either office. Do the same for your other office.

It might seem like you're entering everything twice, but since you divided up the square footage earlier based on how you use it, all of the expenses for the total square footage will be accounted for on your tax return. TurboTax will calculate the correct expense amounts for each office, and the total expense amount will be correct on your tax return.

If you have separate offices for each business, for example one in the house and the other in the garage, you'd enter the pertinent information (like square footage) for each office space when you enter the information for each business

[casberg88]

I have two form 8829's, split correctly.  One business I am closing this year or next but would hope to still get the deduction carried forward.  I though that was possible since schedule C's businesses are consolidated, but I am ignorant here.  

Separately, if the % of the home used for the deduction business is incorrect for last year due to an error of entering the square footage of the home is it best to amend last years form or just correct it this year?

[ColeenD3]

If you are disbanding one of the businesses, just correct it this year. What do you mean by consolidated? You have two separate Schedule Cs and two separate Forms 8829s. 

[casberg88]

My understanding was if you have two businesses on Schedule C that are 100% owned or self employed, then the profits and losses are aggregated into the tax return?  So if business 2 has losses business one has profit one would be able to capture the tax credit for the home office on business 2.   

[DaveF1006]

According to this link from IRS.gov, "If you owned more than one business, you must complete a separate Schedule C for each business." This is located on page C-3 of the instructions and is written in black and white.

As a result, since both are reported as two separate businesses, you will not be able to use one business to offset the other thus would not be able to claim the home office expense for the business that did not make a profit. it is possible though to carryover the unused Home Office expense this year into the next. Please read this link for further details.

[casberg88]

@DaveF1006 @ColeenD3 Thanks Dave.  There are 2 separate schedule C's and the office is shared....so can one just allocated the whole home office expense to the entity that stays open so one can carry the loss forward?  

[DaveF1006]

Not the whole home office expenses, only for the profitable business. The home office expense for the second business that is not profitable is carried over in the next year. These are two separate businesses but the home office expense needs to be allocated between both.

If you did allocate the Home office Expense to one business and if you were routinely audited, there may be a lively discussion between you and the revenue agent regarding allocation of home Office expenses. For me, I try to stay clear from those discussions.

[casberg88]

@DaveF1006 @ColeenD3 

Thanks Dave, can one take the home office expense on the business that is not going to be closed and not take the home office expense on the other business that is  going to be closed this year or next?    or were you saying I have to take the home office expense for both businesses if I elect to take the home office expense?

If I enter the home office expense for either business my refund goes down because of low income for the year, I assume this is because self employment taxes go up? If possible would like to be able to carry the home office expense forward or I guess it's best to skip it for the year.

[ThomasM125]

You are required to enter all items of income and expense that relate to the business. You cannot pick and choose which deductions to take, especially when it results in a smaller tax or larger refund.

So, it would be wise to be consistent in the application of the home office deduction. If you take it for one business and use it in a similar manner for the other business, then you should take it for both businesses.