Tax write off for house

[CHEESE2009]

Alright, so I'm looking at moving into a new home, but I never considered any space as an office to write off for taxes. Anyone want to explain how it's covered? Does it go by square footage? Just wanna ball park it. I'd be paying $1,500 monthly for this house, the office would take up the entire basement living room which I still have to measure out. How about parking/garage/shed, can that be a business write off too?

[Hedgemaster]

Lawn care business tips

I don't know how it works up there, but here it's square footage of the office space. Said space is technically only allowed to have business related items in it. If it's your office, you can't have a storage area/shelves for non business stuff in it. If you want to get really technical, you aren't allowed to surf the net from that room unless it's business related surfing. I do deduct half of my garage space as well. I'm not sure if an outbuilding qualifies. You can deduct a portion of your utilities as well.

[CHEESE2009]

Originally Posted by Hedgemaster

Said space is technically only allowed to have business related items in it. If it's your office, you can't have a storage area/shelves for non business stuff in it. If you want to get really technical, you aren't allowed to surf the net from that room unless it's business related surfing.

Would anyone make surprise visits to check up on this? If I (for example) have a bag of personal potato chips in my office space, how screwed would I be? lol

[stevef1201]

First let me say that you need a qualified accountant to answer this question. I deudct by percentage my office space, garage (exclusivly for mower and equipment storage and repair) electric, water, taxes,etc. This was all set up by my accountant, who as I said earlier you need.

Be very carefull about this.

A very good friend of mine did not do this correctly, and got auditited by the IRS several years ago. He told his wife that he would be going to jail because he cheated on the taxes. To make a long story short, after 8 hours of audit, the IRS auditor told him that home based business is the area of the greatest mistakes made by people. He disallowed several thousand dollars of 'write off' but then did the most unexpected thing. He told Dick that he was getting an addtional 1000 dollars back becasue now his tax write off were correct. He then told Dick TO GET AN ACOUTANT and this would not happen again.

[CHEESE2009]

I have an accountant, I'll be sure to ask him about all this.

[LawnTeam]

I do have an accounting degree. Make sure to discuss what happens when you sell a house that has been used partially for business, with your tax accountant. Also, have a talk with your insurance agent. Homeowners policies generally do not cover business items such as computers and such when they are in the home. Your agent can help you get the right coverage for the space. We learned this the painfull way after a hurricane hit our home and my business space was ruined. Who'da'thunk? I lost my shirt.

[Steve]

Scott,

Another thing to consider is if you use any of those tax software packages, especially the ones that are for small business, they ask you questions about this and walk you right through the process.

We learned this the painfull way after a hurricane hit our home and my business space was ruined.

Can you give a little more insight as to how all this played out? I bet a lot of members are wondering how such storms could effect their business without the proper insurance.

[LawnTeam]

Originally Posted by Steve

Can you give a little more insight as to how all this played out? I bet a lot of members are wondering how such storms could effect their business without the proper insurance.

We had a huge storm come through. The remnants of Hurricane Ida converged with a Nor'Eastr and slammed into us (Nov 2009). A room on the side of our home was used for business only. Displays, seating, supplies, etc. were destroyed by water damage and broken glass. It was a mess. When the insurance agent came to check out the damage, we were shocked to find that the entire contents of the room were uncovered**they were legally business property and excluded from coverage. The damage to our property was so significant that I was essentially out of business temporarily. A neighbor's tree also fell and destroyed our newly completed workshop, a large shed, and the swimming pool was destroyed during clean-up as well. We were unprepared.

As a result, we had to depend on the kindness of others to recover. We were unable to aquire more coverage after the disaster and were left totally uncovered when Hurricane Irene hit in Aug 2011.

We have learned that an oversight and misunderstanding can really cost. The legacy of that disaster is still following me. Make sure your agent is adept at working with businesses and fully understands what equipment you have, who uses it, and where it is stored.

It may sound foolish, but now I try to ask lots of questions, even if I think I understand. I get everything in writing and do tons of research as if it is for one of the stories I cover. I would rather think me a bit dense than end up paying out huge amounts when I could be covered.

Hopefully it won't happen to someone else.

[Steve]

The damage to our property was so significant that I was essentially out of business temporarily

What a story. I hope others are able to learn from this and keep insurance in mind when they are operating, even partially, a business out of their home.

[w0283767]

If you are renting you could write off percentage of payment depending on sf. Otherwise you would only be able to write off percentage of interest expense. That would be high if you are renting. I don't know what mortgage rates are in Canada but they are rediculously low in the states.