Discussion:Home office: start pushing your pencils

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Discussion Forum Index --> Tax Questions --> Home office: start pushing your pencils


Death&Taxes (talk|edits) said:

15 January 2013
http://op.bna.com/dt.nsf/id/emcy-93ypzw/$File/IR-2013-5.pdf

Can you believe it?

Kevinh5 (talk|edits) said:

15 January 2013
Anytime the IRS says 'simplified', it means we get to charge more.

For example, the way I understand how this will work, is that we compute the OIH form, and if it's less than the $5 per sq foot, we take the higher.

This is actually MORE work, not less, for us.

Death&Taxes (talk|edits) said:

15 January 2013
This is what is interesting and requires some thought:

"Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method."

By using the 8829, the percentage of real estate tax was not subject to AMT.

Taocpa (talk|edits) said:

2013-01-15
The new kinder, gentler IRS.

Tom

JR1 (talk|edits) said:

January 15, 2013
"Need not be allocated..." Esp. if you owe SE tax, right?

Trillium (talk|edits) said:

January 15, 2013
Adding a search term, for future researchers: Office in Home

Dennis (talk|edits) said:

16 January 2013
And I suppose we should have the Procedure as well, Rev. Proc. 2013-13

Death&Taxes (talk|edits) said:

16 January 2013
Well, maybe we have an answer to all those who want to take the home office but not claim depreciation, but note this:

"07 Depreciation for a subsequent taxable year in which actual expenses are used.

(1) Use of optional depreciation table. If a taxpayer uses the safe harbor method for a taxable year and calculates and substantiates actual expenses for purposes of § 280A for any subsequent taxable year, the taxpayer must calculate the depreciation deduction allowable in the subsequent year for the portion of the home that is used in a qualified business use of the home by using the appropriate optional depreciation table applicable for the property, regardless of whether the taxpayer used an optional depreciation table for the property in its placed-in-service year. The optional depreciation tables for MACRS property are provided in the annual IRS Publication 946, How To Depreciate Property. For purposes of this section 4.07, the appropriate optional depreciation table is based on the depreciation system, depreciation method, recovery period, and convention applicable to the § 1250 property in its placed-inservice year."

Mscash (talk|edits) said:

16 January 2013
Like every thing else where there is an option, there will be some winners and some losers. Keeping home mortgage interest and depreciation out of the equation is going to make a lot of things easier.

HowardS (talk|edits) said:

16 January 2013
Standard office rate, kinda like the standard mileage rate.

Illini (talk|edits) said:

16 January 2013
I shake my head anytime we think we can always get a way with charging more because of IRS compliance issues. It's like your personal physician telling you the government requires an MRI for every physical, but they are only going to charge us $750 instead of the customary $2,000 as an additional charge for our physical. Do you see my point? It prices you out of the "affordable" range. I am not a brain surgeon saving someone's life -- I am filling out a form; trained yes; experienced yes; highly educated yes; smart -- debatable; worth the money -- yes.....BUT can the clients afford it? They don't have accounting insurance to cover the escalating costs of tax preparation. I'm already charging more than I'd be willing to pay personally for my services, so I don't particularly want to go higher except for inflationary raises. We are pricing ourselves out of business IMO.

CrowCPA (talk|edits) said:

16 January 2013
I don't see anything in the Rev Proc about an office that is already fully depreciated. I've been in this house for decades and have fully depreciated the office. I don't have a mortgage and do most of my own maintenance, so my OIH deduction is just insurance, utilities and taxes. I cut my own fire wood, so the utilities are not too much. The $5.00 per square foot will be about twice as much as I am now deducting. Unless, that is, I have missed something about fully depreciated offices.

I can also imagine some clients opting for this method because they are too lazy to keep good records of expenses.

Kevinh5 (talk|edits) said:

16 January 2013
Randy, I've examined my pricing, and I'm still too low for my level of experience and knowledge. They're willing to pay more to the chains and get someone with 8 weeks training.

Kevinh5 (talk|edits) said:

16 January 2013
Also, I think that I'm like a fine wine. I get more valuable the older I get (because of more experience and more training). I just hope I stop before I turn to vinegar.

Death&Taxes (talk|edits) said:

16 January 2013
Here is another little bomb in the Rev Proc:

"(3) A taxpayer who uses the safe harbor method provided by this revenue procedure for a taxable year may not deduct in that taxable year any disallowed amount carried over from a prior taxable year during which the taxpayer calculated and substantiated actual expenses for purposes of § 280A. A taxpayer who calculated and substantiated actual expenses for purposes of § 280A in a prior taxable year and whose deduction was limited by the gross income limitation in § 280A(c)(5) may deduct the disallowed amount, subject to all other applicable restrictions, in the next succeeding taxable year in which the taxpayer calculates and substantiates actual expenses for purposes of § 280A."

I have about 140 square feet, if that.....at $5 a square foot is my limit $700 (this is all moot since I am on payroll and the tiny portion of the home does not exceed 2% of AGI).

CathysTaxes (talk|edits) said:

17 January 2013
Hmm. New method, you aren't required to depreciate the home. I do the old method, then do a quick calc of $5 per square foot and compare the two amounts.

Many of my clients, believe it or not, are too irresponsible to provide me with their electric, gas, homeowners insurance, etc. They lose them and every year, they ask me to use the amounts from the previous year (and each year I tell them I can't). This new method is easier for me!

Wiles (talk|edits) said:

17 January 2013
I shake my head anytime we think we can always get a way with charging more because of IRS compliance issues...I am not a brain surgeon saving someone's life -- I am filling out a form...I'm already charging more than I'd be willing to pay personally for my services...We are pricing ourselves out of business.

Randy, I often think about these exact same issues. I have a good friend that doesn't mind hurting my feelings (and I don't mind taking it...usually), that tells me the same. It seems to be heading in a direction that the cost to prepare a 'correct' tax return is unsustainable. That is NOT good for us in this industry.

Hippie (talk|edits) said:

18 January 2013
So if we use the $5 does it mean that they will not need to do depreciation recapture when they sell the house? Or is that too good to be true and it is the depreciation is "included" in the $5?

Skassel (talk|edits) said:

18 January 2013
Kevin, my bottle of wine is oxygenated and has a bad cork.

Death&Taxes (talk|edits) said:

18 January 2013
"So if we use the $5 does it mean that they will not need to do depreciation recapture when they sell the house? Or is that too good to be true and it is the depreciation is "included" in the $5? "

"Depreciation for a taxable year in which the safe harbor method is used. A taxpayer using the safe harbor method for a taxable year cannot deduct any depreciation (including any additional first-year depreciation) or § 179 expense for the portion of the home that is used in a qualified business use of the home for that taxable year. The depreciation deduction allowable for that portion of the home for that taxable year is deemed to be zero." (from the Rev Proc)

Presumably if this alternate method were used every year, there would be no need to 'recapture' depreciation on the sale.

Hippie (talk|edits) said:

21 January 2013
D&T. That is what I noticed and for years have been advising clients that they are better off not taking the OIH deduction bc of recapture. So it reads that there will be no capture?...so are there any downsides to taking the $5 psf deduction?

Spell Czech (talk|edits) said:

21 January 2013
As above, "Presumably if this alternate method were used every year, there would be no need to 'recapture' depreciation on the sale."

1. It's not *really* "recapture" that'll be avoided this way, and
2. The taxpayer, I guess, will have to be able to show that the "alternative method" was used in those prior years, I suppose with copies of prior years' tax returns. Otherwise, it's back to "allowed or allowable."

Death&Taxes (talk|edits) said:

21 January 2013
And every year your client paid SE tax on the depreciation not taken, which he will never recoup.

Spell Czech (talk|edits) said:

21 January 2013
And he may have earned *entitlements* by paying that SE tax.

Hippie (talk|edits) said:

21 January 2013
Sounds too good to be true than for someone just starting to use an OIH.

Mscash (talk|edits) said:

21 January 2013
Just musing here: If I input Schedule A deductions and there are not enough, my software automatically defaults to standard. Since the input parameters for home office won't change my crystal ball tells me that 2013 return software is going to default to the better choice and will save us all the trouble of thinking.

Spell Czech (talk|edits) said:

21 January 2013
Which is the correct term, "alternate method" or "alternative method"?

Death&Taxes (talk|edits) said:

21 January 2013
The correct term is: "This revenue procedure provides an optional safe harbor method." This is from the Rev Proc Dennis referenced above. OSHM????????

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