The Hidden Cost of Having a Home Office
Although a few years ago the IRS rewrote its regulations so you no longer have to specifically allocate sale profits to the "home" and "office" part of your residence, your in-home workplace still could add to your post-sale tax costs.
The main reason for the potential tax trouble is that the most favorable rates afforded residential sales don't apply when it comes to your home office.
Don't overlook a deduction. If you write off expenses related to your home office, be sure to take the depreciation deduction. Why? You'll have to recapture that depreciation (i.e., pay taxes) when you sell -- even if you never took the deduction. Depreciation rules are tricky.
In the simplest situation, where we're talking about an office within the actual house, the home office depreciation that was taken on prior returns must be accounted for when you sell.
If you depreciate the office portion of your home, the amount of that write-off will reduce your property's basis. Lower basis will mean you made more profit, perhaps enough to push you over the $250,000 or $500,000 tax exclusion amount.
Thomas A. Leggette, J.D., Author:
Consumer Contracts in VirginiaVirginia Continuing Legal Education
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