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Can I Depreciate Construction Costs and also take the Simplified Home Office Deduction of an office built next to my house?

Forum|Forum|6 years ago
June 1, 2019
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We are building an office next to the house. It fits all the usage requirements for a home office. If we depreciate the construction costs to build it, can we still take the home office deduction using the square footage? If not in the year of construction, how about future years?

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Best answer by TaxGuyBill

As Carl said, you can not depreciate it and use the Simplified Method for your Home Office Deduction in the same year.

Because of the large cost of building a separate structure, the I suspect the Actual Expenses (with depreciation) will give you a better deduction. Depreciating 100% of the new structure would be easiest and most accurate.

Carl11_2

What you're describing to me, sounds like double-dipping. You can't do that. You have two ways to do this.
- If this building is a separate structure and that building will be your home office with 100% business use, you can add it as an asset to your property with 100% business use and it will be depreciated over 39 years.
- The other thing you can do is add the cost basis to the cost basis of your entire property. This can NOT be depreciated. It just increases the cost basis of your property. Then you have to refigure your total square footage, since this "addition" increased it. Then the percentage of that new higher total square footage used for the "home office" (which is the new building) is used to figure your home office deduction.
Once you select a method, you can not change it later down the road. But either way you go, you will be closing the old, existing home office first. Then the next day, you open your "new" home office.

T

TaxGuyBillAnswer

As Carl said, you can not depreciate it and use the Simplified Method for your Home Office Deduction in the same year.

Because of the large cost of building a separate structure, the I suspect the Actual Expenses (with depreciation) will give you a better deduction. Depreciating 100% of the new structure would be easiest and most accurate.

Carl11_2

that's what I would do. But I'd have to look at the pre-construction cost-basis and the after construction cost-basis to determine which method would be best. I would expect the latter of my above, because adding more floor space actually reduces the percentage of office space I can claim for the home office deduction. It would depend on how much the after construction increased my cost basis, as to which method I would choose.