Ask Me Help Desk - Depreciation of a Home

Hello,
I just started my own small business and I'm trying to do my own accounting because I'm studying it at College. But the knowledge of the accounting is not, obviously, too good and I'm confused!
How do I depreciate my home? I'm working from home and I found out that I can depreciate my home and count it as a expense (some of it anyway). We have had this house one and a half year with a 30-year mortgage. I started my business November and soon is time to do the taxes. We paid for this house $245,000 and we have basically paid only the interest.
How can I count the depreciation? And how much of it I can use? Only the percentage I use my home for office?
I hope that you understood what's going on because I'm not very fluent in English...

Thankful for a help

OK, what part of the home do you use for business?

Do you have one room or two rooms, that is used for nothing but business. You can't count as business space a bedroom that is a bedroom, or a dining you you work off the table, Do you have specific rooms used for nothing but business.

There are other rules but this is the first one to deal with

I strongly suggest you forget it. First you can only use the portion of your home that is used EXCLUSIVELY for business purposes towards your taxes. Plus, if you do that, then that part of the home that becomes commercial property which willcomplicate matters when you go to sell it.

Also, you mentioned in another post, you had not generated any income yet, so you don't need deductions.

Quote:

Originally Posted by Fr_Chuck

ok, what part of the home do you use for business?

Do you have one room or two rooms, that is used for nothing but business. You can't count as business space a bedroom that is a bedroom, or a dining you you work off the table, Do you have specific rooms used for nothing but business.

There are other rules but this is the first one to deal with

Yes I have a room ONLY for a business use. It's only 4% of hole house (we have a hudge house) but I don't mind to take all that is offered by IRS. :D

Perhaps the following publication, and links on it, from the IRS will be of help to you. It is from the following site. IRS Publication 587, Figuring the Depreciation Deduction for the Current Year

Quote:

IRS Publication 587, Depreciating Your Home

If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Depreciation is an allowance for the wear and tear on the part of your home used for business. You cannot depreciate the cost or value of the land. You recover its cost when you sell or otherwise dispose of the property.
Before you figure your depreciation deduction, you need to know the following information.

The month and year you started using your home for business.
The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business.
The cost of any improvements before and after you began using the property for business.
The percentage of your home used for business. See Business Percentage.
Adjusted basis defined.
The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. For a discussion of adjusted basis, see Publication 551 (pdf).

Permanent Improvements.
Adjusting for Depreciation Deducted in Earlier Years.
Figuring the Depreciation Deduction for the Current Year

Four percent is just not worth it, In my opinion. The amount of tax benefit you get versus the increased scrutiny by the IRS and the issue of part of your home being commercial property, just doesn't justify taking the deduction.

I tend to agree with Scott. For 2007, it is NOT worth the trouble to take the Business Use of the Home deduction. You may not be in business come this time next year, so you do not want to complicate the $250K exemption you get when selling your home by claiming business use of the home for two month's worth of business.

If the business works out for 2008, you can claim it for 2008 and, if you want, go back and amend your 2007 return at that time.