self-employed and house remodeling

[mishutka]

My husband is a sole proprietor for the last 20 years. This year was difficult - practically, no income (less than $1K). For the first time ever, the business is negative. But we did our home remodeling including the office (a dedicated room in the house). What is the right way to write off the business portion of the remodeling? Can we right off the remodeling expenses?

[Anonymous_]

You can recover the cost of improvements through depreciation deductions.

See https://www.irs.gov/publications/p587#en_US_2022_publink1000339

[Critter-3]

Home office deductions are limited to net income on the Sch C so any deduction you cannot use is simply carried forward ... complete the OIH section of the program and the form 8829 will be completed automatically.

[Opus 17]

Furthermore, only the costs you actually paid can be used, you can’t take anything for the value of your own labor.  

Improvements made to the whole house are allocated to the office on a square foot basis, listed as assets, and depreciated.  The portion allocated to the rest of the house is added to the cost basis and may reduce your capital gains when you sell.  Improvements specifically to the office can be  depreciated 100%, while improvements that are unrelated to the office (like remodeling the master bath) are not used at all as business expense.