Many self-employed professionals and small business owners work exclusively from home, earning their incomes without the commute to and from an outside office. The Internal Revenue Service allows a deduction for business use of your home for expenses such as mortgage interest, utilities and depreciation if you use part of your residence exclusively for business. You aren't required to depreciate for having a home office, but if you are claiming a home office tax deduction, there are good reasons for claiming depreciation.
Depreciation and Recapture
According to the Internal Revenue Service, those who qualify for and claim the home office deduction may claim depreciation. When they eventually sell the home, they are required to pay tax on the depreciated total, whether or not they took the depreciation on their taxes in the meantime. The recaptured depreciation is taxed at a special capital gains rate as high as 25 percent. Kay Bell of Bankrate.com explains the depreciation deduction as a “deferral of taxes into the year when you sell the residence.” This occurs regardless of the capital gains exclusion of $250,000 on the sale of a residence.
Benefits of Claiming the Home Office Deduction
People who qualify to take the home office deduction do so to reduce their taxable income. Those working from home aren’t required to take the home office deduction, and not all those who take the home office deduction would claim depreciation. For example, renters who work from home may take the home office deduction and deduct a qualified portion of their rental expense -- but they don't own the home, so there is no depreciation.
If You Don't Depreciate
If you own your home and claim the home office deduction but choose not to depreciate, you won’t realize the full value of the deduction. Depreciation figures into the deduction calculation, and without it, you won’t lower your income taxes as much as you would by taking it.
Reasons Not to Depreciate
Those who don’t want to create recapture income from depreciation along with other possible tax consequences at the time they sell their home should not take the home office deduction at all. Likewise, some people want to keep their tax filings as uncomplicated as possible -- if you're one of those people, you may decide it's not worth the time and trouble to take the home office deduction.
- TurboTax: The Home Office Deduction
- BankRate.com: Home Office Can Have Hidden Tax Costs
- Small Business Administration: Small Business Expenses and Tax Deductions
- IRS.gov: Home Office Deduction
- IRS.gov: Depreciation and Recapture
- Deduct It! Lower Your Small Business Taxes; Stephen Fishman
Heidi Cardenas specializes in human resources, business and personal finance, small-business advice, home and garden and home improvement. Her professional background includes human resources and business administration, technical writing and corporate communications. She has studied horticulture and business administration, and enjoys guest blogging for publications including Herb Companion Magazine, Natural Home Living Magazine, and Mother Earth Living.