Can I Deduct Depreciation on My Primary House?

by Fraser Sherman, Demand Media Google
    If you have a home office, you can write off some of your home's depreciation.

    If you have a home office, you can write off some of your home's depreciation.

    Depreciation lets you claim a tax deduction for deterioration. If you use your car for business, for example, you can claim a deduction each year based on how much value the car loses with age. You can claim depreciation on your aging primary home as well, but it will have to be a purely business decision.

    Business Use

    If you use part of your house exclusively for an office, a day care center or storage for business supplies, you can claim part of your home expenses as a business deduction. If your office takes up 10 percent of the floor space, you can write off 10 percent of your utilities as a deduction, plus 10 percent of depreciation. You can also claim depreciation if you rent out part of your house.

    Considerations

    The depreciation deduction comes with a long list of restrictions. In most cases, that part of the house must be entirely for business: a work computer in the master bedroom does not a home office deduction make. If you only use the property as a rental or a home office for part of the year, you only claim part of a year's worth of depreciation. If the depreciation deduction puts your business in the red, you can't write depreciation off against other income, but you can carry it over to next year.

    Adjusted Basis

    A depreciation claim may hurt you when the time comes to sell the house. Tax on the sale is based on your gain, the difference between the sale price and the adjusted basis. That's the original purchase price adjusted for various factors. If your basis is $170,000, and you claimed a total $7,000 depreciation on the basement apartment you rented out, your adjusted basis is $163,000. If you sell the house for $200,000, you have $37,000 in gain to report rather than $30,000.

    Calculations

    To figure out how much your home depreciated, you have to calculate the adjusted basis and fair-market value -- just of the house, not the land under it -- at the time you started using it for business. Use whichever figure is smaller to calculate depreciation. If you use 15 percent of your house for business, and the house is worth $115,000, 15 percent of that figure is $17,250. Multiply that amount by the Internal Revenue Service depreciation table in Publication 587, based on the month the business use began. If it was the seventh month of your business year, for instance, you multiply $17,250 by 1.177 percent to get your depreciation deduction.

    About the Author

    Fraser Sherman is a former reporter with the "Destin Log" newspaper and now freelances full-time. His work has been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life," and he's the author of three film reference books, including "Screen Enemies of the American Way." He specializes in finance and tech articles.

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