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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3161
Experience:  I've prepared all types of taxes since 1987.
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I spent around 20K on repairs and improvements on my office

Customer Question

I spent around 20K on repairs and improvements on my office space, which is in an apartment I RENT, including dry-wall, painting, ceiling improvements, I fixed the cracked cement floor by installing flooring etc...

I use the space I fixed up exclusively as an office, and I want to deduct all the repairs/improvements as the were a business expense... After all, I do need a suitable place to conduct business... Is this okay? Business made about 250K this year if that matters. Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  jgordosea replied 3 years ago.

Greetings,

 

To be deductible the improvements would have to only be on the portion that does qualify as a home office that is used regularly and exclusively for business. For more information on qualification see http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction

If not spent on the part that is a home office these expenses would be deemed to be nondeductible personal expenses. For example if the entire apartment was painted at your cost only the business portion is deductible.

 

Improvements, above and beyond repairs, are subject to depreciation so the cost is usually recovered over several years. The improvements would use the 39 year life for deprecation. For details of what is an improvement versus a repair and the depreciation percentages see http://www.irs.gov/publications/p587/ar02.html#en_US_2012_publink1000226352

 

 

Repairs to a home office would be used as an expense in the year incurred as part of the home office deduction.

There may have been some repairs and some improvements in a given year.

 

If you move the balance of the improvement not yet depreciated would be deducted in the year of the move.

 

Please ask if you need more help or discussion.

Thank you.

Customer: replied 3 years ago.

does depreciation really apply if it is a RENTED, rental property???


 


I mean, I don't own it... So I don't own anything that would be depreciating in value.

Expert:  jgordosea replied 3 years ago.

Hello again,

 

Although you do not own the rental unit you did purchase the improvements, so you do own that asset for tax purposes. Yes, improvements (like any asset that has a useful life or more than one year) are not able to be deducted in full in the year of the purchase, in general, in much the same manner that the cost of a desk or equipment has to be taken over the IRS determined life of the asset. The provisions that allow some equipment to be expensed in the first year in service under section 179 do not let these improvements be fully expensed. Qualified leasehold improvements must be nonresidential property.

 

Sorry if that is not the answer that you expected or would prefer. This is not disallowing any of the expense paid, only requiring that it be spread over time.

 

Please do look at the items and know that repairs (such as painting) can be expenses in the year paid, so perhaps not all the cost need be subject to depreciation. Also, if you still have unclaimed basis when you leave that location the balance of the cost of the improvement amount will be deducted in the year of the move.

 

Hope that clarifies for you even though it may not be the answer you wanted.

Please do continue to ask if you need more help.

Thank you.