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Home Office New Construction - Separate Structure
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TxLaine
Level 3
04-10-2022
11:32 PM
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Schedule C Psychotherapist had an office shed built in the backyard from the ground up. Cost 35K, finished right at the end of 2020, so starting in 2021, she moved her home office out there. Previously she had been in a space within the main home for the last couple years.
Does the new structure expense get added as an improvement and the overall square footage just get updated and keep depreciating the main home cost? If so, the new structure is subject to the updated square footage %, or can be taken at 100%?
Seems like she should be able to take it at 100%, but then probably not still take the cost of the main home we've been writing off since 2019? Do mortgage and real estate taxes still go on the 8829 if we are taking the $35,000 in full.
The gas and electric are connected to the main home meter.
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1 Comment 1
rbynaker
Level 13
04-11-2022
06:16 AM
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I would "place in service" the new asset and depreciate it by itself. Then remove from service the old office to stop its depreciation.
IMO, unless there was a construction loan or the mortgage was refinanced and the cash-out was used to build the new structure, no more interest allocated to Sch C. I guess I could maybe see an allocation for interest on the land but I'd have to give that some thought.
RE taxes would depend on your local assessment. Some localities break out and assess structures separately. If that's the case you can see exactly how much the tax is on the new structure and deduct that. If not then you're allocating.
