Posts Tagged ‘home business tax deductions worksheet’
Home Business Tax Deductions
April 29th, 2010
Question: Home office tax deduction - I entered all the info in turbotax, but it doesn't show up.?
We have a Home Business - event videography. All my other expenses show up, but there is nothing under "Home Office" on the summary page of my business expenses.
Answer: Usually they will ask you a serious of questions such as: did you use this home office exclusively and regularly as your place of business. you must say yes. Also, keep in mind that if you are depreciating this home office, when you sell your home you will have to recapture the depreciation.
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Home Business Tax Deductions Worksheet
April 10th, 2009
Question: How do you determine the depreciation basis for a separate structure home office?
Pub 587 says you can deduct expenses for a separate free-standing structure if you use it exclusively and regularly for business. We're looking at a 10x10 unit. Based on size, the structure does not require city permits and is not included in the overall property appraisal value. How would you calculate the depreciation expense and portion of utilities on the Worksheet to Figure the Deduction for Business Use of Your Home?
For example -
Home is 900 sq ft and Seperate structure office is 100 sq ft
Home original cost 300,000 (Land = 200K, Bldg = 100K)
Separate structure original cost = 10,000
Method A: Office space is 10% of total square footage. Total basis is 100K + 10K = 110K. Depreciation basis for structure is 10% or 11,000.
Method B: Original cost of separate structure used for depreciation basis 10,000
If using Method B, would you still use 10% square footage to determine indirect expenses like utilities? Can you include mortgage interest and property tax?
Answer: Since it is a separate structure, there is no reason to relate it to the size of the house. Land does not depreciate, so the lot price is irrelevant. You should depreciate the $10,000 cost over the useful life of the structure.
It appears that the mortgage does not apply to the new structure since the mortgage must already exist on the house and land. If you finance the structure cost, the interest would be deductible. Property tax would be deductible to the extent it increases as a result of adding the structure. However, the IRS would probably not question some portion of property tax applied to the structure.
You could estimate utilities on the basis of square feet being realistic. For example if you don't have a bathroom in the structure, applying 10 percent of the water bill would be inappropriate. On the other hand, applying more than 10 percent of the electric bill might be reasonable if you have a lot of equipment, such as computers, refrig, electric heater in the structure. the important thing is to be realistic. And to the extent that your insurance covers both buildings, a portion should be applied to the office structure.
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