Replies

1. 
   Mike_Smith | Dec 30, 2001 01:45am | #1

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   before the tax laws changed i took deductions for home office / shop.. when we sold the house i got caught with capital gains because you have to depreciate the commercial part...

   big tax liability after 10 years of living there

   now that the tax laws have changed.. i'd ask your CPA what the effect would be when / if you sell the house..

   the depreciation was mandatory with the deduction..

1. 
   jim_"crazy_legs"_blodg | Dec 30, 2001 03:39am | #2

   *You might want to check your business insurance policy, Jim. If you have your shop insured under your homeowners insurance and there's a mishap the company might deny your claim for, say, cabinets to replace the set that burned up in the fire. We have our shop insured under our commercial policy. It's more expensive, but I'd hate to take a loss like that. Then, of course, the cost of insurance is deductible. Not what you were asking, but it came to mind.

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   blue_eyed_devil_ | Dec 30, 2001 04:07am | #3

   *Jim, Mike has properly instructed you to beware of the deduction/recapture capital gains trap.On the other hand, don't throw away perfectly good tax deductions. Crunch the numbers, or let your CPA crunch them.There are many techniques to maximize tax benefits especially to business people. I don't claim to know even a small part of what a competent CPA might know.Home offices and shops are aggreassive, but legal. Let your CPA figure it out. If you don't have an aggressive CPA, get one.Incidently, even if you have previously claimed deductions you can stop for two years and still get a full homowners exemption. There might be some recapturing of depreciation, but it's still worthwhile because you still exempt the gain.blue

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   Bill_Hartmann | Dec 30, 2001 06:30am | #4

   *JimAn outbuilding does not have the limitations of the "office in home" as far a qualifying. You should probably take it.Also the tax lanquage using the phrase "depreciation taken or ALLOWED". When you sell they can reduce the cost basis by the amount of allowed depreciation even if you don't take it. That is unusal, but it is a possibility.

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   Jim_Walters | Dec 30, 2001 03:12pm | #5

   *Jim ..everybody (will check CPA advice)Thanks for the info. Right now my shop is under homeowners and more or less considered a separate garage....no where near enough coverage if burned. I need to change that since it seems I will be making most of my income here....and have hundreds of board feet of valuable wood stockpiled.

2. 
   blue_eyed_devil_ | Dec 31, 2001 10:42pm | #6

   *Bill that's a great point. I don't know if the full understanding/implication is evident. Maybe you should elaborate. I'll re-state it the way I know it.If you have a building "in service" which means it's being used for commerce or investment, you are "required" to take the deprication write off. Even if you don't, wehn you sell, the tax accountant and IRS will treat your taxable gain as if you did. essentially your taxable gain might be quite significantly higher, thus causing your tax bill to be quite high, even though you weren't financially wise enough to lower your taxes in the previous years.Either invest a considerable amount of time in this horrible area of business called tax issues, or let a professinal advise you. If you don't, you could wind up in an IRS financial disaster. Then comes the tax attorney at $500 per hour....blue

3. 
   Allan_Edwards | Jan 01, 2002 12:41am | #7

   *blue:I am not sure for home office, but for rental property or commercial property it is not mandatory that you deduct the depreciation on a building. I’m not sure why you wouldn’t want to, but if you don’t there’s just less to recapture when you sell it, it’s basically a wash for you and the IRS. I would think it would be the same for a home office. Depreciation is just a way to expense out a percentage of the value of a building as allowed by IRS schedules. When you sell, you “recapture” or recognize that depreciation taken in previous years as capital gains income. Why would the IRS make you recapture depreciation you never recognized?While we are talking taxes, there are some changes coming in the new year very beneficial for business owners.Allan

4. 
   Bill_Hartmann | Jan 01, 2002 05:14am | #8

   *BlueYou have it correct. There is an accounting (CPA's and EA) forum on Compuserve and it has come up several time. If I remeber correctly this has been tested in court at one time. Not in terms of the problems of recapture, but it was something else where some one was trying to INCREASE there taxable income to qualify for EIC or something else. Anyway the courts ruled that they had to take the depreciation deduction.As far as a home office goes. If you don't want to worry about that just don't have "qualified" home office. It is very easy to disqualify a home office. Read your Playboy or Newsweek in there.

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   Jim_Walters | Jan 01, 2002 05:14am | #9

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   I, for the first time, have spent most of this year in my shop building cabs/furniture. It is a separate building beside my house. Approx 600sq' with a separate office (that I do take a deduction for)

   Do any of you guys take deductions for your shop? Legally? What form do you use?