home office deduction depreciation recapture

This method allowed taxpayers to use a rate of 5 per square foot (up to 300 square feet) to calculate the deduction rather than computing actual expense.
You can read all of Kays article here.
This is probably no moreand is often lesstax than you would have to pay if you didnt take the deductions in the first place and instead paid tax on your additional taxable income at ordinary income tax rates.The complication comes from that tricky tax factor known as depreciation.Kay Bell christopher paolini books pdf at the Dont Mess with Taxes blog reminds us that there can be an unexpected, negative tax consequence to taking the home office deduction on a tax return.But those rules, says Stein, don't apply to business property and a home office is considered business property.Single homeowners who sell don't have to pay taxes on up to 250,000 in profit; the exclusion amount is double for married taxpayers who file joint returns.You qualify for the exclusion if you lived in your home for at least two out of five years before you sell.That takes up more of your time to track expenses and deductions, as well as more of your money if you hire a professional to do the job for you.Depreciation rules are tricky, dealing with the depreciation.If you depreciate the office portion of your home, the amount of that write-off will reduce your property's basis.But its also important to know what will happen someday when you sell the property.To this, you should eliminate the office outside the walls of your home and move it inside your home at least two years before you sell.Example: Richard, a single taxpayer, lived in his home for 10 years and had a home office in a bedroom, amounting to 20 of the home.The law says that you must depreciate your home office to claim all the other home office deduction benefits.The Home Office Tax Deduction, for details.) However, taking this deduction could have a tax impact when you sell your home.

As such, there is no requirement to reduce the basis in your home when you sell.More Information on Tax Issues and Home Offices.Unfortunately, that doesnt work, as Kay explains: The IRS is going to make you pay for the home office depreciation when you sell your house even if you didnt claim.He owes tax on the 20,000 of capital gains attributable to his office (20 x 100,000 20,000).You'll have to recapture that depreciation (i.e., pay taxes) when you sell - even if you never took the deduction.For example: You sell your home in 2014 for 40,000 more than you purchased it for in 2009.Note: The rules are different if your home was used to generate rental income.This means that the gain shielded from income has dropped from 40,000 in the previous paragraph to 39,300.However, wherever your home office was located, you will have to pay a capital gains tax on the depreciation deductions you took after May 6, 1997 for the office.Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation.However, be aware that the home office deduction lowers the taxable basis of the house, so it is possible that you have a gain on the house sale when that is taken into account.
Example: Carmen bought a 200,000 home six years ago and used one of her bedrooms as her home office.
It lowers your taxable income, which lowers your income tax and your self-employment tax.