Yardley CPA Posted April 8, 2020 Report Share Posted April 8, 2020 MFJ client. Husband is a financial advisor and was recently laid-off from his job. He has decided to open his own firm and work out of his house. He is considering constructing a small home office suite and asked me what type of deductions could he take on the construction? I am not aware of any. I provided him with information on the home office deduction and reminded him of the need for the space to be used exclusively and regularly for that purpose. He has not filed any type of articles of incorporation. He would probably be a sole proprietor. Is there anything that I am missing about what he can deduct if he did construct an office? Is he entitled to anything besides potentially the home office deduction? Since we're on the topic, could he convert an extra bedroom into his home office? Quote Link to comment Share on other sites More sharing options...
Lee B Posted April 8, 2020 Report Share Posted April 8, 2020 If he is serious about this, he should construct a small free standing office which he can rent back to his business, an LLC or an S Corp . 1 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted April 8, 2020 Report Share Posted April 8, 2020 1 hour ago, cbslee said: If he is serious about this, he should construct a small free standing office which he can rent back to his business, an LLC or an S Corp . And make it a legal "granny" unit if possible, so it could be rented out for that purpose too if ever desired, or upon property sale... 1 Quote Link to comment Share on other sites More sharing options...
Roberts Posted April 9, 2020 Report Share Posted April 9, 2020 Yes an extra bedroom can be deemed a home office - several of my neighbors do that. They can depreciate any office furniture or equipment they put in the office. Just my opinion but the safe harbor they instituted a few years ago is the best option only because you don't have to recapture the depreciation when you sell and you don't have to keep track of things each month. I've yet to meet anyone who didn't prefer that route when explained to them. A lot of the financial advisors I know who do this sort of thing actually end up signing up for an office sharing arrangement (like WeWork) just so they have a mailing address and a conference room to meet clients. For $200-300 per month they can be a good deal. CPA in my building just switched to that type of office. If you do the office sharing arrangement they lose the home office deduction. 2 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted April 9, 2020 Report Share Posted April 9, 2020 If regular home office is substantially more than simplified, it's well worth claiming because it saves SE tax and income tax. Paying tax on the depreciation later (if the house even sells for a gain) is a small price to pay for that. But I do use simplified on some, for various reasons. 4 Quote Link to comment Share on other sites More sharing options...
Catherine Posted April 10, 2020 Report Share Posted April 10, 2020 On 4/8/2020 at 4:32 PM, cbslee said: If he is serious about this, he should construct a small free standing office which he can rent back to his business, an LLC or an S Corp . The rent-back has been severely limited for several years now. We no longer recommend the self-rental scheme. No, I don't have a cite handy. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted April 10, 2020 Report Share Posted April 10, 2020 Self-rental of home office is fine as long as the rental shows a profit. Losses on self-rental are suspended as passive, but profits are not passive income, so if you have no other passive income, those losses are suspended until you sell the house. 2 Quote Link to comment Share on other sites More sharing options...
Burke Posted April 13, 2020 Report Share Posted April 13, 2020 Another thing he needs to check on, especially if he constructs a separate building, is how his local city/county treats a business in a residential neighborhood. They may have restrictions, prohibitions (especially if it is a place where clients come), boundaries & setback regulations, rules on signage, type of construction requirements to conform to neighborhood zoning, or separate taxes which need to be paid. He will need a building permit, etc. and may need to get a waiver from the local authorities. Everything is added to basis when construction is done, so may come into play on depreciation schedule. An office-in-home is just that. An office IN the home. I know in my community for a real estate broker, for instance, any home office MUST have a separate entrance for clients. 2 Quote Link to comment Share on other sites More sharing options...
Burke Posted April 13, 2020 Report Share Posted April 13, 2020 In my above post, I mentioned separate entrance requirements for my community. In actuality, that is a Real Estate Board requirement which applies to all licensed brokers in the state. I am not familiar with state regulatory requirements for financial advisors but they may have them too. Same may go for attorneys. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.