We remodeled a part of our basement to create my home office/retail shop. How do I enter the remodel expenses into the business taxes?

[PatriciaV · Accepted solution]

If the space that was remodeled is used exclusively and regularly for your business, you may include the cost as a separate asset for the Home Office Deduction.

If the entire basement was remodeled and a portion was for your Home Office, you will need to allocate the cost to the square footage of your home office. Then add the allocated cost as a separate asset for the home office deduction.

[doyle1]

Where do I add the separate asset? On home office summary or as a depreciable asset?

[PatriciaV]

If this is a new home office space and not a renovation to an existing home office, add a new Home Office from the summary page. Then record the cost of the renovations as a Home Office Asset from the Asset/Depreciation topic.

[alandhtt]

I have the TT download for Windows.  

Can I deduct the expense for a new office in my home instead of depreciating the asset?  

[DianeW777]

It depends. There is a Safe Harbor DeMinimis  deduction however it may not be available for you. The information below will allow you to determine if your home office fits the criteria.

Improvements Election

This election is an option you can take each year that lets you write off some building improvements as expenses instead of assets.

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits: 
  • 2% of the unadjusted basis of your building or
  • $10,000

This election for building improvements is called the Safe Harbor Election for Small Taxpayers. If you decide to take this option, a form called Safe Harbor Election for Small Taxpayers will show up in your tax return. This election will apply to all your businesses, rental properties or farms.

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2020? mark the Yes button and click Continue. 
2. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue.
3. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less. 
4. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision. 
5. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2020?
6. If you say Yes, you will be taken through the screens for the Improvements election.
7. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets. 
8. On the Rental Summary screen go to the Expenses section and click on the Start/Update box. 
9. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.  

Here is what taxpayers need to know about the home office deduction.  This link will help you determine if you meet the qualifications to deduct a home office.