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House Depreciation Recapture


Mojo Dojo Casa House Depreciation Recapture. If you are self-employed/own a business, if you qualify, you have the option of deducting your home office.

To do that - you must use it regularly (it’s your primary place of work) and exclusively (you can’t use it for anything else eg a guest bedroom, your dining room table, etc).

There are two different methods you can use for this - the simplified or the actual method.

With the simplified, you just take your home office square footage, multiply it by five, and that’s your deduction for the year (100 square feet x 5 = $500 home office deduction).

With the actual method - you take your actual home expenses (property taxes, mortgage interest, utilities, depreciation) and allocate the % of that expense to your home office based on square footage of your home office and your entire house (100 square foot office, 2,000 square foot hours = 5% home office use allocation of those expenses).

ONE thing to be careful of if you own your home and do the actual method - when you sell your home you will be subject to depreciation recapture.

Depreciation recapture is when we take the depreciation expense we deducted in all the prior years, then add it back as a taxable event at ordinary income rates when you sell your house, and is not eligible for the primary residence sale exclusion.

This means if you sold your home, and over the course of 10 years you deducted $10,000 in depreciation expense in your home office, all those prior years of depreciation expenses are now added as INCOME in the year you sold your house.

Now I know what you’re thinking, you’re going to try and get all clever and say, well I will take actual expenses, but I just won’t take the depreciation deduction. Now I won’t have to recapture anything when I sell. Huzzah!

WRONG - even if you DON’T take the depreciation expense, the fact that you were eligible to, counts as if you did. So now you have to recapture and expense you didn’t even take!

In short - if you have a home office and use the actual expense method, please use licensed tax professionals like @veritycpas to assist in your return to avoid mistakes on this deduction.

Contact us now to avoid mistakes! : 808.546.5026 ext. 303 or info@verity.cpa!"

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