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Home-Office Tax Deduction


Guest deepValue

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Guest deepValue

Does anyone know what percentage of home is typically allocated for the home-office tax deduction (8829 line 3)? If I deduct 20% of my housing expenses, is that going to raise a red flag?

 

Who else files an 8829/how much do you deduct?

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You also turn a tax free gain (up to 250,000) into a taxable event (based on the % office).  The rules are complex if you want to deduct as must be exclusively for office and no other office available. 

It is one of the most overrated deductions around.  Remember you get the interest and taxes anyway.

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New regulations came out late in 2013 for a safe harbor method.

 

http://www.irs.gov/uac/Newsroom/Simplified-Option-for-Claiming-Home-Office-Deduction-Starting-This-Year

 

20% is high - but it doesn't matter - just be able to justify to any auditor.  The main thing to remember is that you can't have any other office (i.e. provided by a company or other rental).  It must be the primary space.  You aren't really turning a non-taxable gain into a taxable gain unless you choose to depreciate the property - even then you are getting an ordinary deduction today and recapturing a 1250 gain at 25%.

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You also turn a tax free gain (up to 250,000) into a taxable event (based on the % office).  The rules are complex if you want to deduct as must be exclusively for office and no other office available. 

It is one of the most overrated deductions around.  Remember you get the interest and taxes anyway.

 

although if the market's down it might not be a bad idea to turn this into a tax-loss event for your home - iv'e been thinking how to short-sell my home if the market turns around , and this is the only way i could think of. 

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Guest deepValue

I'm actually just renting a condo, so the only real downside of taking a large deduction is that I could get audited. My deduction will be more than $1,500 so I can't go the safe-harbor route. I might just deduct a smaller percentage.

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although if the market's down it might not be a bad idea to turn this into a tax-loss event for your home - iv'e been thinking how to short-sell my home if the market turns around , and this is the only way i could think of.

.

Remember the amount of depreciation is based on the LOWER of cost or fair market value, thus you would be starting out at depressed prices.

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Does anyone know what percentage of home is typically allocated for the home-office tax deduction (8829 line 3)? If I deduct 20% of my housing expenses, is that going to raise a red flag?

 

Who else files an 8829/how much do you deduct?

 

I've taken 20% while renting.  Now I am living in a new place and it will be closer to 10%.  I think you should take it if you are really using that space for your business.  When I owned a house, I didn't take it because I thought it was a red flag and not worth the hassle.  Now I will take it.  I wish I would have always taken it.  Like bigbadwolf says, "just be able to justify to any auditor".

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The square footage of the home office as a percentage of the total square footage of the house is what determines the percentage of the home expense that can be deducted. The smaller the house, the greater the % that can be deducted. 

 

Its a portion of the utilities and alarm company, landscaping fees, insurance, trash pick up,  telephone, etc. 

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Guest deepValue

How can taking a random % be right? What you do is walk around your home office and measure the square feet. Then you divide by the total # of sq feet in your house and that's the %.

 

I'm not taking a random percentage; two large rooms are dedicated to work. I'm not concerned about getting caught for tax fraud because my office space really is about 20% of my condo sq ftage. I just don't want to get flagged for an audit, which taking an unusually large home-office deduction could certainly do. If the audit were to expand beyond my home-office deduction, it could become expensive and time-consuming. I'd rather avoid it.

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