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Depreciation & Recapture

Question: I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?

Answer:

Generally, depreciation on the business use portion of your home, up to the gross income limitation, is figured over a 39 year recovery period and mid-month convention.  As long as you are entitled to claim depreciation, it reduced the basis of your home accordingly, whether or not you actually claimed it on your tax return.  

However, beginning in 2013, there is a simpler option (Revenue Procedure 2013-13) where qualifying taxpayers may use a prescribed rate ($5 per square foot limited to 300 square feet) to compute their business use of home deduction.  This option used in lieu of determining actual expenses is meant to reduce taxpayers' recordkeeping burden. Under this option, depreciation is treated as zero and will not reduce the basis of your home.  For more information, see Home Office Deduction and Simplified Option for Home Office Deduction on IRS.gov.  In addition, under this optional method, taxpayers may still deduct business expenses unrelated to qualified business use of the home for that taxable year, such as advertising, wages, and supplies.

Additional Information:


Category: Sale or Trade of Business, Depreciation, Rentals
Subcategory: Depreciation & Recapture

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
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