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Home office deduction

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  • #16

    Well, the IRS is pretty clear about having to use and recapture the depreciation.

    The argument is whether the tax impact is actually zero or not like you wrote on the blog. It’s my understanding that the depreciation recapture will lower the property basis which might push you above the $250K/$500K capital gains exclusion. In addition, tax on the recaptured depreciation is 25% vs. the more favorable 15% cap gains tax (or 0% cap gains tax) because it’s classified under Section 1250. There’s also the added complexity of filing the tax return(s) correctly. Since the typical homeowners only stay in their place for about seven years, your point about never selling is accurate but not particularly relevant for most people. It seems like 25% effective tax rate upon sale would be the deciding factor.

    Is any of that incorrect or you feel it’s always offset by the immediate tax savings for high income earners?
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    I believe you are grasping at straws. Don't know of many people who end up with a $250k per person LTCG in 7 years. It happens, but I'll advise our clients to go for the sure thing.

    The added complexity is not a factor, at least in our firm. At the income/wealth/complexity levels we are discussing, it would be unusual to find a self-prepared return. Again, it happens, but that would wave a red flag at the IRS.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087