turning residential prop into business

Forum|Forum|7 years ago
October 14, 2018
1 reply
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Hi,

If you move out of your home and turn the entire home into your business, how do you document that on turbotax? We see that it asks when you bought the property---do you put the original date of purchase, even if that was years before you started to use it exclusively for work?

Thanks!

Best answer by Anonymous_

Right, but I am not "in the business of selling Real Estate to customers". I inherited one house, and have made improvements to it in order to put it on the market. Then the property flooded, and I am now spending more to make flood proofing improvements and repairs to restore it to its previous condition. It has become its own business.

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Carl11_2

Employee

Are you converting what was your primary residence or 2nd home, to rental property?

TaxesorbustAuthor

Employee

hi! thanks for the question. no, it's not a rental property, it's a personal business. I'm not keen on giving personal info here, but figure if someone was turning a very small home purely into a fashion design studio.

Carl11_2

Employee

I'm not keen on giving personal info here

Keep it that way. This is after all, a public forum and there's no doubt there are tolls just waiting for people to post personally identifiable information. Now there's nothing wrong with posting necessary details, just so long as there's nothing in those details that would allow or contribute to one stealing your identity.

What you're describing to me, I'm interpreting as a SCH C business. That would be a sole proprietorship or a single member LLC. Any other type of business is not a SCH C business, and it would be important to let that be known here. Otherwise, reporting things wrong on your taxes will be $costly$..... I guarantee it.

Some non-tax related things to consider first. I point these out because it is not common for someone to move out of their primary residence and then convert the entire property to SCH C business use. If the county, town or city the property is located in has zoning laws, (not all do) confirm that the property is zoned for commercial business use. If it's not, you WILL have a problem the next time your property tax assessor comes around - generally every two years. If your city, town or county requires you to have a business license for your location, make sure you have it. You may also be required to have a valid fire inspection to confirm your "now" business building meets required fire codes. I point this stuff out because I see situations where people are not aware of this stuff, and when they find out "the hard way" all the fines and penalties bankrupt the business before it even gets off the ground. So CYA. Now for the taxes.

Basically, you're not "converting" anything. The entire property is a business asset, and it gets entered as such in the Business Assets section of the SCH C section of the program. You'll be asked for things like when you purchased the asset (which will be the property) and the purchase price and other information on it. Understand that information is completely separate from the "in service" date. Business property is depreciated over 40 years (whereas rental property 27.5 years) and depreciation starts on the "in service" date you specify.

Any expenses (such as utility costs) incurred before the in service date are just flat out not deductible. Period. But don't confuse that with startup costs (which the program will ask you about). Now I'm going to assume you know the difference between business expenses and startup costs, and will not waste time telling what I assume you already know. This is in the interest of saving you time, since you have less than 24 hours to get your 2017 taxes e-filed on time.

One last thing for the SCH C also. If you do not already have an EIN for your business, *get* *one* *right* *now* at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online It only takes about 10 minutes. When you get that number, DO NOT LOSE IT! You will need it for as long as you are in business.