home office deduction

[pangho]

Greetings, I am a self-employed using TurboTax HB.  I have about 24,000 worth of home repair expenses (roof, furnace, ceiling, etc.)  My office account for 38% of my home.  Turbox HB would not allow me to deduct the 38% of the 24k, saying I don't have sufficient net income. In this case. can report 12,000 and save the other 12,000 for next year deduction? 

Thank you in advance for any advice. 

Pang 

[Mike9241]

no. anyway that extra amount should be a carryover to 2023

[Critter-3]

If you have an eligible Home Office the expenses can be deducted based upon the square footage of the office as a percentage of the square footage for the home.  Property taxes, mortgage interest, utilities and assets to be depreciated including the home office itself can be used.  The OIH expenses is LIMITED to the net Sch C income and what is not used currently is carried forward.  Review the Sch C & 8829 carefully ... here is more info on the subject : 

Review this IRS website for Home Office eligibility - https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

IRS Publication 587 Business Use of Your Home - https://www.irs.gov/pub/irs-pdf/p587.pdf

TurboTax support FAQ for a home office - https://ttlc.intuit.com/questions/1901224-can-i-take-the-home-office-deduction

[Opus 17]

Some of the things you list are not repairs to be deducted, they are improvements to be added as assets and depreciated.  

An improvement is a property betterment, that adds value to the property or extends the useful life of the home or of its main subsystems.  This is in contrast to repairs or maintenance, which only keep the property in as-was or as-is condition.  Repairing a furnace igniter or a hole in the roof is a repair, but replacing the furnace or replacing the roof is an improvement, because it extends the working life of the roofing or HVAC systems in your home.

Improvements to a home office are listed as an asset to be depreciated.  I believe the general recovery period is 40 years for business property, although some classes of property might have different recovery periods depending on the expected life of the improvement.   You must list the improvement and let Turbotax deduct the expense over it's expected lifetime.  Depreciation for improvements also affects your capital gains when you sell the property.  In some cases, items costing $2500 or less that are normally depreciable can be expensed instead.  I don't know all the detailed rules, but Turbotax will.

You need to divide your expenses into improvements and repairs, and list each improvement separately as an asset.  Allow Turbotax to calculate the depreciation and the recovery period, and if the improvement qualifies for the expense safe harbor, you will be offered the option.  List the repair and maintenance only under repairs and maintenance.  If your expenses are still disallowed by your net income, you must leave them on your tax return.  You must claim items when the work is actually performed, but unused expenses may carry forward. 

[Carl]

I have about 24,000 worth of home repair expenses (roof, furnace, ceiling, etc.)

At that costs, that's not a repair. It's a property improvement that gets added to the cost basis of the property and depreciated over time. 

Assuming the roof was replaced in full, then 38% of that would be business use and that 38% would be depreciated over time.

Assuming the furnace was replaced (and not "repaired" in place) then 38% of that cost would be business use and depreciated over time.

As for the ceiling, if the ceiling repair (I'm guessing from someone falling through or getting dropped through it during the new roof installation) if that ceiling repair was in the home office, then it would be 100% business use. Depending on the extent of the damage repaired, that "might" be a fully deductible repair expense.

If the ceiling repair was not in the home office, then nothing concerning that would be deductible or depreciated, and depending on the extent of the damage repaired, it might not even add to your cost basis if it was in fact just a "repair". (Meaning maybe 1 or 2 pieces of sheet rock.)

If the ceiling repair was because of water damage from rain that leaked through before they got the new roof on, then I would expect that to be quite extensive and costly, which may enable you to justify that as a property improvement. Would really need more details, as all this info on the ceiling is purely speculative based on no facts at all.

[pangho]

Hi Mike,

thank you for the response. I will let TurboTax carry it over to next year. 

[pangho]

Thank you very much Critter for your response.