Depreciation on home office for dog business in home with prior rental depreciation

Forum|Forum|2 years ago
April 10, 2024
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I use one room in my home for my dog boarding business, and I also rent out another room part time. I have previous depreciation from renting the entire house, along with several improvements from when it was a rental, and some when it was personal use only.
How do I enter the asset of a home for my dog business when it asks when I first used it in "this business." If I enter 2023 there's no place for prior depreciation. If I enter an earlier date when I didn't even have the dog business, it asked what method I used for home office expenses in 2022, and eventually asks for date acquired, date in service, and prior depreciation.
If I enter 2011 as the year in service (when I bought the house), it says I'm on year 12 of depreciation. It won't let me edit that if I switch to forms view. It does let me enter the correct amount of prior depreciation.

None of this is accurate. The prior rental depreciation life was at 27.5 years, and now the home office is at 39 years. I also used the home for personal use several of those years.
What should I do?

Percentage of business use?

TT asks what percentage of my business income is from use of my home office. I had only used the small percent % of my income that comes from clients that I visit at their homes.

Any clarification appreciated

TurboTax Home & Biz Windows

DianeW777

Yes, here is what to do. This is going to be a paper trail for you because of the many different uses of the property. This is not something that can be handled in the tax software.

For the dog business home office use the following information to arrive at a cost basis for the entire home, then use business percentage to arrive at a fair and logical depreciation.

Original cost (from rental period), including any capital improvements (not repairs) less all depreciation used on your tax returns in prior years = the cost basis to use when completing your home office expense.
Take the home office square feet divided by the total square feet of the home to arrive at the business use percentage.

You are correct, the home office is considered 'nonresidential property' and must be depreciated over 39 years.

Keep all prior tax returns that show the depreciation used for all purposes. This will be very important when you sell the home later.

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LuLunaAuthor

Thank you for your help

New Question/Issue
While diving into TT, it asks how much of your business is conducted in your home office. Percentage of income comes from use of home office?

I use this room only for my dog boarding business, but the dogs also hang out in the rest of the house and the yard, and we take walks in the park etc...I'm confused now what percent of use this means. I had only subtracted the small percent % of my income that comes from clients that I visit at their homes.

Original cost (from rental period), including any capital improvements (not repairs) less all depreciation used on your tax returns in prior years = the cost basis to use when completing your home office expense.

So in this case it is OK to minus depreciation taken for the original costs?
Looks like I can ignore land and land improvements?

Take the home office square feet divided by the total square feet of the home to arrive at the business use percentage.

TT says if you rent a portion of your home you need to minus out parts of square footage rented out exclusively. This will be a pain because I only rent out a room a percentage of the year. I guess I can do each month individually and divide by 12?

I'm tempted to give up and use the simplified method, but my income is too low to benefit from itemizing deductions of mortgage interest and property tax, so I'm trying to see if I can do it this way.

DianeW777

The office percent is what is allowed for any house related expenses for the office. The fact that you allow the dogs in the rest of the house, or the yard, is not something that would create a bigger expense for your office.

Direct expenses for the dogs is allowed to be deducted 100% for your business.

So in this case it is OK to minus depreciation taken for the original costs? Yes, as indicated earlier.
Looks like I can ignore land and land improvements? - Yes or add them together to enter your land figure only if included in the total cost entered for the home.

You may have a better deduction using the simplified method. The nice part about this is that there will be no depreciation recapture when you sell later.

It's normal for an office percentage to be low in comparison to the whole house, which is what is required for actual expenses.

@LuLuna

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