Home Office Tax deduction - Garage?

joshuabcrutcher

New member
Deduct the expenses associated with the garage. It must be reasonable and logical. It is perfectly OK to do this, but must be adequately justified. For example, if you have a home office you can literally divide it up as 1/6 expenses if you have six rooms, the percentage of sq. footage, or actual expenses. It is a judgement call. The IRS cares that it is representative of the actual amount.

They truly do not expect you to break out every expense because it can be time consuming and illogical. You can provide an estimate that is in line with and representative of your actual expenses...
 

joshuabcrutcher

New member
It's my understanding that Publication 587 of the Tax code that deals with deductions of business use of the home says that any depreciation claimed over the "allowed" amount is taxable at the sell of the home.

Even if that is not right, and ALL business related depreciation is taxable, you're still pushing out taxes to a future date which is usually what is advised by a good accountant.

The first $250,000 profit on the sale of a home (per spouse) is not taxable if I understand right. Meaning that you'd have to have a home worth more than 1.4m and run your business out of you home for many years before the depreciation would even come into effect.

Am I wrong in this?

EDITED LATER

It appears that after 1997 you would have to deduct your depreciation from the exempt amount of profit at the sale of the home. For example:

Good Scenario:

Your house is worth 300k
You depreciate 2k per year claiming half your house. (huge)
You sell the house after 20 years for $800k
You've deprecicated $40k over the years.
You and your spouse have profited $500k. You have to pay taxes on 40k of that $500k.


Bad Scenario

Your house is worth $300l
You depreciate 2k per year claming half your house
You sell the house after 20 yrs for $300k
You've depreciated $40k over the years.
You and your spouse profit nothing. You have to pay taxes on 40k.

What are the chances?

The writeoff still seems like a winner all around.


Not exactly true in first scenario and depends on a number of factors. First, the $800k - $300k (basis) = $500k is taxable as profit from your home. It will be recognized as proft one way or another depending on how you have everything set up and structured. The "business portion" of your home and the expenses associated with your business are deductible. You would ALSO have to pay taxes on a portion of the $40k because of depreciation recapture.

NOTE: For tax purposes, depreciation must be in accordance with IRS MACRS schedule. Your accountant may use a different method of depreciation (only typical for publicly traded companies), and therefore would need to adjust the depreciation expense taken per books to match expenses to meet IRS MACRS criteria.

In the second scenario, you are accurate and would be taxed on the $40k because of depreciation recapture principles.
 

Scott Stone

New member
Quite honestly, this is the very reason I have a beautiful accountant. Mine saves me a ton of money every year, and saves me far more than she costs me every year. I don't claim a home office, on her advice. I also do not claim a lot of other things that might be gray. I have had a brother, that deservedly, received a level 5 endoscopy courtesy of the IRS. That is not something that I think is in my best interest, so if it is gray, it is out around my house.
 

joshuabcrutcher

New member
Scott,

Your accountant SHOULD be claiming your home office IF it is your primary office. You didn't mention that you have another physical location that is your primary place of business which would be the ONLY reason for some gray area. There are MANY restrictions on deducting home office expenses IF there is another primary physical location.

If you do not have another physical location besides your home office, I would recommend you asking your accountant why it is not being deducted. The only reason I could see the accountant not deducting the home office without the presence of another physical location would be lack of knowledge and the fear of taking a perfectly legal course of action because of their lack of knowledge. If those conditions exist, I suggest another accountant.

Josh, BBA Accounting/MBA
 

Tony Shelton

BS Detector, Esquire
Scott,

Your accountant SHOULD be claiming your home office IF it is your primary office. You didn't mention that you have another physical location that is your primary place of business which would be the ONLY reason for some gray area. There are MANY restrictions on deducting home office expenses IF there is another primary physical location.

If you do not have another physical location besides your home office, I would recommend you asking your accountant why it is not being deducted. The only reason I could see the accountant not deducting the home office without the presence of another physical location would be lack of knowledge and the fear of taking a perfectly legal course of action because of their lack of knowledge. If those conditions exist, I suggest another accountant.

Josh, BBA Accounting/MBA


Josh, I think Scott's accountant is here to stay... :butcher::p
 
Quite honestly, this is the very reason I have a beautiful accountant. Mine saves me a ton of money every year, and saves me far more than she costs me every year. I don't claim a home office, on her advice. I also do not claim a lot of other things that might be gray. I have had a brother, that deservedly, received a level 5 endoscopy courtesy of the IRS. That is not something that I think is in my best interest, so if it is gray, it is out around my house.

Now that is funny...Hahaha! I gotta remember that one. :yeah:
 

Tony Shelton

BS Detector, Esquire
OOPS... Not meaning to offend or step on toes by any means!!! Just throwing that out there!


I was unaware that the IRS differentiates between "finished" square footage and "unfinished" until our last audit.

They actually went to the city and got the building sketches and we had to write off a different rate for the unfinished space vs the finished. Even though 500 square ft was finished as an office, since we didn't permit it with the city it counted only as unfinished garage space.

And by the way, I'm pretty proud of my accounting skills - for that audit (2004-5-6) the auditor went through 4 checking accounts with deposits totalling around 2.1 million we got spanked with owing $600.00 more dollars.

We just expect to be audited every year. We're full of all the triggers. But the best thing you can do when audited is just have everything laid out ready to go and labelled. It makes it go faster. But that one still took three weeks.
 

Christopher

Moderator
Those are some of many, many reasons that I don't go into the gray area too much, depending on what it is, a lot of things flag you for future audits and to me it is not worth it to save a few more dollars at the expense of a potential audit that could take weeks out of your schedule (you are not working when the audit is being done), other opinions will differ but to me, it is not worth it.
 

Tony Shelton

BS Detector, Esquire
Those are some of many, many reasons that I don't go into the gray area too much, depending on what it is, a lot of things flag you for future audits and to me it is not worth it to save a few more dollars at the expense of a potential audit that could take weeks out of your schedule (you are not working when the audit is being done), other opinions will differ but to me, it is not worth it.


Chris, if you are self employed and you are not overpaying the government you WILL be audited in the course of your business. The 04-5-6 audit was our second, the first was just a simple audit (? I don't know what they call that) done through the mail just for 1999. I expect to be hit again by 2015 or sooner. It's just part of doing business.
 

Scott Stone

New member
OOPS... Not meaning to offend or step on toes by any means!!! Just throwing that out there!

I understand what you are saying. She has a very impressive resume for a reason. She would claim it, but the cost benefit of claiming what we have a as a home office deduction, and the risk of an audit, especially with family history, it is not worth the money to take the risk. She counseled us not to take it, but left it up to us.

Since, at last count, I calculated that she averages saving me 15-20k a year in taxes, between all the stuff she takes care of, I figure she is smart enough to know what is best for my business.

She has handled our accounting for about 15 years now.
 

welder

New member
I have a totally detached garage with a loft I use for my office. I pay myself a sq foot price rent and I put in a sub meter and pay myself the electric consumed. Other than the occasional bicycle repair or oil change, it is used exclusively for business. All lawn and garden stuff is stored in a different shed. Works for me and passes all requirements.
 

Ron Musgraves

Exterior Restoration Specialist
Staff member
I'm getting my stuff together to take to my accountant. I have an office at home that is dedicated to my office and serves no other purpose, so I deduct this on my business taxes.

I use my garage for no other purpose than my business. I have a separate storage shed for my personal items. Do any of you deduct your garage as a business expense?

Yes, its great!!!
 

KGILL

New member
Just talked to a CPA yesterday. Until this year I have done our taxes, but with my business, the wife's work, and her part time job teaching it got to be too much. I wrote off her home office last year and the CPA said it was okay. He said he was going to do the same thing this year. We have to discuss whether or not I can write off part of our garage as one side is used for the company, and the other side is her car and lawn stuff.
 
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