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Author: wwallberg One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121110  
Subject: Home Office deduction Date: 3/29/2005 4:51 PM
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I am interested in possible repercussions of not taking certain deductions:

I moved into my first home in 2004.

My gross 2004 income was 81% W2, 19% 1099.

The 1099 income is as a computer consultant. I work primarily at client sites but do research, documentation, some programming, billing and bookkeeping in my home office.

I have set up an office in my home that I feel meets the IRS tests for home office use (exclusive area, etc.)

Because the thought of an audit is unpleasant at best and home office is often spoken of as being an audit red flag I wonder about the advisability of using this deduction. I am still running the numbers both ways to see if there is a big enough reduction in taxes to make my partial year usage worthwhile.

My question: If I don't take any home office deductions this year are there any future repercussions? Particularly if I decide to reverse course and begin using the deductions in future years? Can the deductions be taken piecemeal (i.e.: portion of utilities but no house depreciation)? And again - any repercussions because of this?

Thank you,

Wayne
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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78133 of 121110
Subject: Re: Home Office deduction Date: 3/29/2005 5:36 PM
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wwallberg writes (in part):

If I don't take any home office deductions this year are there any future repercussions?

I reply:

Yes. When you eventually sell your home, before applying the home sale exclusion of $250,000 or $500,000 (depending on whether you're married), you will first be required to recapture all depreciation allowed or allowable. In other words, you will eventually be taxed on the depreciation whether you take the deduction or not. So you might as well take it if you're entitled to it.

When I owned my own business and worked from home, I ran some rough numbers and concluded that the tax savings would not be worth the hassle. So I made sure that my home office did not qualify for the home office deduction, specifically in order to avoid this problem down the line. --Bob

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78150 of 121110
Subject: Re: Home Office deduction Date: 3/30/2005 12:50 PM
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Bob said:
Yes. When you eventually sell your home, before applying the home sale exclusion of $250,000 or $500,000 (depending on whether you're married), you will first be required to recapture all depreciation allowed or allowable. In other words, you will eventually be taxed on the depreciation whether you take the deduction or not. So you might as well take it if you're entitled to it.


I'm not an expert in this field, but seem to me that if you don't take the Home Office Deduction in any year you don't have to take depreciation so the above is not correct. The HOD is not mandatory and may be skipped voluntarily or because the space no longer (or just in that year) qualifies for the HOD.

But no, you can't pick and choose which deductions to take if you elect the HOD. I think you mnust take property taxes and mortgage interest first (because you could have deducted them on Schedule A) and depreciation last, with other expenses, such as utilties, inbetween.

Without the HOD you could still deduct your second phone line, office equipment, DSL and/or website maintenence and applicable car, travel and entertainment expenses (and the taxes and interest on Schedule A). ed


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Author: wwallberg One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78155 of 121110
Subject: Re: Home Office deduction Date: 3/30/2005 3:44 PM
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Thanks for the responses on the home office deduction...The HOD is not mandatory and may be skipped voluntarily or because the space no longer (or just in that year) qualifies for the HOD.

One other thought I just had: Does talking the home office deduction change my auto mileage calculations? I currently record and write off my milage between sites - if I travel from my W2 job to 1099 work I call that deductable milage. Travel from my final stop to home is commuting. If my office is in my home and I continue work at my home office is the mileage from last 1099 to home office deductable as well?

Wayne

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