September 25th, 2020 Brad Hennebert
Whether you claim a business office in the home, or are simply working at home because of COVID-19, you likely have some former personal assets that you now use for business if you are self-employed. You can also claim other home office deduction expenses!
Bought a new desk, chair, computer, printer or office furniture? It can be bonus depreciated on your 2020 tax return, or depreciated over time. Let’s say you use the fancy chair 85 percent for business purposes. Can you depreciate 85 percent of that chair? Yes!
Let’s say that grandma’s estate was appraised and this chair had a value of $10,000 when you inherited it about a year ago. It’s an antique, so it’s not gone down in value since you inherited it. When you convert the fancy chair to 85 percent business use, the law sees you as placing the item in service in your business at that time. That means you can begin depreciating the asset and claiming your tax deductions.
To determine the basis to use for depreciation, use the lesser of
• fair market value on the date of conversion from personal to business use, or
• adjusted basis of the property (generally the amount you paid for the asset plus the cost of any improvements).
With the fancy chair, your adjusted basis is the inherited value. Say you bought the chair for $8,000. Suppose it was worth $10,000 when you convert it to personal use. You would use the $8,000 figure to determine your depreciation deductions.
You can also deduct your business use percentage of the common utilities, mortgage and property tax for your home office space you use regularly and exclusively for business, or use $5 per square foot up to $1,500 annually. You can also deduct a portion of your internet bill, at your business use percentage.
This is definitely complicated… how do you calculate the amount you use it for business?…what is depreciation?…so give us a call and we’ll help prepare your returns and maximize the amount of money you keep after-tax!