Started a business in in a home I was renting and and later bought the house - causing smart check error.

[Heed AV8]

My home office was placed in service 10/1/2020 and I was renting the house at the time.   I later purchased the same house I was renting and that closed on 4/1/2022.

Sched C, Form 8829 (Line 2), asks when the home was acquired - 4/1/2022. Line 3 (Date placed in service) is pulled from a prior TurboTax entry and is the 10/1/2020 date.

Smart check is flagging this as an error because the purchase date is after the date the home office was placed in business.  We've lived in the house since 2017 and nothing else has changed other than buying the house.

Not really sure how to solve this error.

Thanks,

Matt

[KrisD15]

I don't see that asked on Form 8829, but perhaps it's a TurboTax worksheet for form 8829, 

Enter 10-1-2020 as the date acquired. 

Whether the home is owned or rented makes no difference for the home office deduction if you are using the Simplified Method. 

[Heed AV8]

Thanks.

Yes, that's from a "worksheet" - Form 8829 Asset Entry Worksheet specifically.  I started typing my post from the TurboTax error page that simply stated Form 8829.

I am not using the simplified method, my deduction is bigger with actual costs.

I noticed that the Date Acquired entry on the worksheet has a qualifier at the end that states "if converted from personal use".  TurboTax was pulling the date acquired from the Personal Deductions section where the Mortgage originiation date is entered.  Obviously there is no distinction about business use there.  I didn't just convert it from business use when I bought the house.  Seems to be a distinction made for when people start a business and then later convert home space into business use.

I can manually change the date to 10/1/2020 and it doesn't seem to impact other calculations on the actual forms, but I could be missing something too.

Thoughts on changing the worksheet to 10/1/2020 since that is the actual date I converted it from personal use given I am not using the Simplified Method?

Thanks again,

Matt

[AliciaP1]

You are not entitled to report depreciation on a rented home.  So, you need to change the date placed in service to the purchase date to begin depreciation calculations for your home office.

@Heed AV8 

[Heed AV8]

Thanks, fundamentally I understood that.  But using the software, it's not apparent unless you're working in the worksheets.

That does impact the depreciation calculations. 

I also realized the rent for the first three months was not utilized in the home office deduction calculations - not sure that matters.  But I was looking at last year's forms/worksheets and saw the entry for rent

I deleted the asset entry data (from Easy Step) and I am re-entering that for the depreciation calculation.  I'll just enter the "started using in business" the same as the acquired data (4/1/2022).  I am not sure if this will cause other problems as the home office start date won't match the other entries (10/1/2020) and is only part of the year???

I am at a bit of a loss at this point.

[AliciaP1]

You will have 2 home offices.  One that was rented and has no depreciation from 1/1 - 4/1 and one that was owned from 4/1 - 12/31 with depreciation.  You can still enter the actual expenses, but will only have the correct number of months of expenses without depreciation and with depreciation.  Lots of people start a business or start using a home office part-way through a year and it does not cause an issue with the IRS.

@Heed AV8