Home Office Deduction regarding property taxes and depreciation

[msDtG]

I have had a home office since the purchase of my home in 1977. I built an office in 1990 and then another space that is also used exclusively for business. I'm confused about the property taxes as the accountants that are in the same office have done it differently these past 3 yearsl

My property taxes are $17 K. There is a limit to deduct $10K if I were to itemize. The program says the standard deduction is best. Does that mean I put the entire $17K in the indirect expenses on line 17? Last year the difference was put under direct expenses on line 17.  Previous years the entire amount was put under indirect expenses. Perhaps some years they itemized and some years they didn't.  Will the program just put in in the riht place? Also there is part III for depreciation of your home. I have had a home office since  I purchased the house but started using a bedroom, then built a space with a separate entrance and then an additional space. I have no idea how the previous accountants came up with the depreciation amount as it is much more than I am coming up with. 

[Spino]

It sounds like you might need help with this from a tax advisor 🙂

One thing I recommend is that you write down--perhaps in a spreadsheet--how you calculated all the expenses you deduct and where you put them.

Generally when I was advising clients, I would try to steer them away from using the "home office" deduction. It sounds, though, like you might be someone who should.

First, you have a dedicated space for your business at your home. The expenses of that space are "home office" deductions.

Two, those expenses can include depreciation, utilities, internet, improvements, furnishings, and so forth. Alternatively you could set a fair market value (or below) and charge your business rent (and report that rental income, of course.)

Three, whatever you deduct needs to be carefully documented in case the IRS ever challenges it. Historically they have seen a lot of abuse in this area.*

Four, anything you deduct one place obviously can't be deducted twice, so if you deduct something as a business expense, you cannot deduct the same thing as a personal deduction. Taking the standard deduction could be one way to avoid that problem on schedule A.

*Your experience with accountants who deducted things different ways every year and did not give you careful documentation of how and why may reflect this history--or maybe not!

[msDtG]

Without a doubt I meet the home office deduction as the spaces are used exclusively and regularly with clients. That is not the issue. My accountant couldn't do mine in time which is why I am attempting to this myself with turbotax. My ONLY questions have to do with property taxes and where they should be on form 8829. Do I see it done differently in previous years because, some had expenses itemized and some used the standard deduction. That is what I am thinking. If I am using the standard deduction which is what turbotax is telling me is the best, THEN does he entire property tax get up on line 17 of indirect expenses for the home. Last year an amount that looks equal to my property taxes minus $10 was put under direct expenses line 17. So Maybe my return was itemized last year. Still not sure why it would be under direct expenses. I'm doing it myself because my accountant said he couldn't do it in time. Mostly everything else is pretty straightforward.  My numbers are entered into quicken so I get things categorized. I then use a spreadsheet to make things clear. This last accountant didn't include all the worksheets so it is hard to know what and why he did what he did. So the depreciation of the house is also confusing me.  Im doing this myself because  I can't get into my tax advisor. Or maybe pay the $80 with the program. Is their help any good?

[Spino]

You need to apportion the property tax and depreciation. Generally if your house is 5000 square feet and 1000 square feet is used exclusively for your business, you could reasonably deduct 20% of your property taxes and 20% of your depreciation.

For depreciation, you also need to keep track from year to year since you may eventually sell your home at a profit. Depreciation on a home does not include the land value, but it does include all the expenses of acquiring your home. However, if you built the home office as a separate project, you might just take the entire cost of the build and depreciate it as a business expense, since it is separate. And obviously then the cost of this build would not include the cost of the land, which does not depreciate. Depreciation is typically straight line for 27.5 years so you would take the basis (original cost), divide by 27.5, and deduct that amount each year. If you are using a % of the whole, you then apply that %. So a 275,000 build (not including land) would be $10,000 a year depreciation. If that were for your whole construction and the business has sole use of 20%, you would reduce that to $2000, etc. This is covered in the IRS publications on depreciation.