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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12657
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan, I would like to follow-up on my previous questions.

Resolved Question:

Megan, I would like to follow-up on my previous questions. As I mentioned in 2012, I replaced the insulation in my attic prior to renting a room. The cost was $3000. How do I record this cost? Do I simply add it to the adjusted basis that I listed on my 2010 form 8829? I assume that this repair would affect both the use of a small portion of my home for business purposes which began in 2010 as well as the rental of a room which began in 2012 right after the insulation was replaced. Then later in 2012 I had my deck restained and a door replaced. How do I account for these costs for my business office and my room rental? (What if they had been significant improvements that needed to be depreciated. How would I account for them in this situation?)
Submitted: 9 months ago.
Category: Finance
Expert:  Megan C replied 9 months ago.

Megan C :

Thank you for your follow up question, Anton

Megan C :

For the insulation replacement, I would just add that to your basis. It's such small dollars once you break it down into the depreciation formula so I wouldn't spend a lot of time on allocation, etc.

Megan C :

Also, the deck restained and the door replaced are repairs and maintenance. If the door is on your rental portion of the house, then the door is fully deductible. If it's your front door, then you would only deduct the portion of that repair that is attributed to your rental.

Megan C :

But, these are not capitalized and depreciated over the life of your house. They are repairs and maintenance.

Megan C :

Replacing insulation, replacing the roof, remodeling a kitchen or bath are improvements.

Megan C :

Replacing a door, repainting a deck, etc are not significant improvements that extend the useful life of the asset, and are just part of the routine expense of having a home.

Megan C :

So, do not depreciate these items.

Megan C :

Do you have any follow up questions?

Megan C :

If not, please rate this response as "excellent" so that I may receive further credit for assisting today

Customer:

How do I show these costs on my tax forms? Do I simply add them to my adjusted basis on form 8829?

Megan C :

No, you do not add them to your adjusted basis. You are not depreciating these items

Megan C :

You put them on line 19 as a direct expense

Megan C :

Is there anything else I can assist you with today? If not, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

OK, I see now. But in the future if I had an expensive improvement that had to be depreciated, how do I account for it?

Megan C :

You would just add to your basis.

Expert:  Megan C replied 9 months ago.
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Expert:  Megan C replied 9 months ago.
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Customer: replied 9 months ago.


So let me see if I understand what I should do if in the future if I did a major renovation to my house that would need to be depreciated. I would show the amount on both line 19h and line 19i of form 4562 and then add that amount (in the case of business use of my home) to line 36 of form 8829 and then go through the calculations to determine the allowable depreciation on line 41 of form 8829. Is that correct?

Expert:  Megan C replied 9 months ago.
Thanks, XXXXX XXXXX your follow up.

Yes, that's correct - you would show the amount on both line 19h and line 19i of form 4562 and then add that amount to line 36 of form 8829 and then go through the calculations to determine the allowable depreciation on line 41 of form 8829.

Thanks so much! Let me know if you need anything additional. If not, please rate as "excellent" so that I may receive credit for assisting you today.
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12657
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 3 other Finance Specialists are ready to help you
Customer: replied 9 months ago.

Megan, I'm trying to do my 2012 return. As you may recall in 2010 I set aside a small portion of my home (3.73%) to conduct my business. I continue running that business and using my home office in 2011, 2012, and now in 2013. The cost basis of my house, after deducting for land value, is approximately $300,000. In May 2012 I began renting a bedroom, bathroom, and half of the shared spaces which is equal to about 30% of the square footage of the entire house. So now do I change the amount on lie 19i of form 4562 to $210,000 and create a new entry on line 19h in the amount of $90,000 as the basis of that part of home that is rented. If so, what explanation do I need to provide to show why my home's basis lost 30% in value? And for that rental portion, do I show 30% of the basis shown on my 2010 tax form or this amount minus the amount already depreciated in 2010 and 2011? Finally what would I do, say, a year from now if I stopped renting a room but continued to run my small business.

Expert:  Megan C replied 9 months ago.
Thanks for your follow up. Yes, change the amount to reflect the decrease in value. You don't need to give an explanation unless asked by the IRS later on. I think you have a good handle on what to do.

When you stop renting your room, you go back to depreciating the full amount.

Thanks! Let me know if you need anything else.
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12657
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 3 other Finance Specialists are ready to help you

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