<petraparis44[at]gmail.com> wrote:

- quote -

She is right in most respects.

If you are entitled to deduct the business use of part of
your home -- what is usually called a "home office" deduction --
then that creates a depreciation expense that reduces current
income, but which must be recaptured when the property is sold,
resulting in ordinary income. This income in the year of sale cannot
be excluded in the way that a capital gain from the sale of a
principal residence may be excluded.

This is not necessarily a bad outcome, if you have a high
income during the tax years during which the depreciation applies.
But most taxpayers want to avoid this outcome, because the recapture
appears all at once (although there are ways to avoid it: installment
sale, like-kind exchange, etc.)

Where your sister may not be entirely right is in the suggestion
that you have any choice in this matter. It is possible to
"blow" the home-office deduction -- not qualify for it in
the first place -- and this is a common bit of tax planning, but
it depends on your facts and circumstances. If you are not
using any part of your home exclusively for your business, then
that blows the deduction and you can follow your sister's advice.
But if you do not claim the deduction, and it is later determined
you *could* have claimed it, then you are out of luck -- you
must recapture the depreciation as if you had claimed it.

(A question for the group: does that ever actually happen?)

Finally, the numbers involved (50% of $26K) are sufficiently
small that even if it is all recaptured at once at some future
point it might not be that huge an impact. It really depends
on whether your income is higher now than it will be then.

Steve

--
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I have another question and I hope you don't mind. It should be my
last one for this year. (I hope!)

I purchased a little rural house two years ago and hired somebody to
fix it
up. Total costs: 22690 Dollars. I paid all in cash. It is has 813 sqm.
Half of it I use for
as my only place for business.

My sister is a bookkeeper in Europe and her advice makes me even more
confused about deduction as I am already are.

Here is my headache:

My sister says that I should not deduct my house for the business use
because that would cost me dearly if I one day want to sell the
house privately. She says, if I deduct the business part from home, I
have
to sell the house then as business house and can't sell it as private
house and that would be a big financial loss for me. Is she right?

(She does not know American tax laws just European laws.)

She says I should deduct the house only as a private thing. I should
not
deduct any business use.

But how should I do that? I have no mortgage. I paid the whole thing
in
cash.

If I write it off privately WHERE on 4010 do I write it off?

As it would be not already complicated enough, I bought a barn behind
this
house last year. I use it half for business and half to store private
stuff.
The barn did cost me 1615 bucks.

WHERE and how much of my storage barn can I write off?

Please ease my headache and give me some advice.

Very thankfully,

Taxpayer with big headache!

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >