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How do you determine the depreciation basis for a separate structure home office?
Pub 587 says you can deduct expenses for a separate free-standing structure if you use it exclusively and regularly for business. We’re looking at a 10×10 unit. Based on size, the structure does not require city permits and is not included in the overall property appraisal value. How would you calculate the depreciation expense and portion of utilities on the Worksheet to Figure the Deduction for Business Use of Your Home?
For example –
Home is 900 sq ft and Seperate structure office is 100 sq ft
Home original cost 300,000 (Land = 200K, Bldg = 100K)
Separate structure original cost = 10,000
Method A: Office space is 10% of total square footage. Total basis is 100K + 10K = 110K. Depreciation basis for structure is 10% or 11,000.
Method B: Original cost of separate structure used for depreciation basis 10,000
If using Method B, would you still use 10% square footage to determine indirect expenses like utilities? Can you include mortgage interest and property tax?
Since it is a separate structure, there is no reason to relate it to the size of the house. Land does not depreciate, so the lot price is irrelevant. You should depreciate the $10,000 cost over the useful life of the structure.
It appears that the mortgage does not apply to the new structure since the mortgage must already exist on the house and land. If you finance the structure cost, the interest would be deductible. Property tax would be deductible to the extent it increases as a result of adding the structure. However, the IRS would probably not question some portion of property tax applied to the structure.
You could estimate utilities on the basis of square feet being realistic. For example if you don’t have a bathroom in the structure, applying 10 percent of the water bill would be inappropriate. On the other hand, applying more than 10 percent of the electric bill might be reasonable if you have a lot of equipment, such as computers, refrig, electric heater in the structure. the important thing is to be realistic. And to the extent that your insurance covers both buildings, a portion should be applied to the office structure.
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CPAs year-end tax-savings tips
The Queens/Brooklyn Chapter of the New York State Society of Certified Public Accountants (NYSSCPA) recommends these Year-end Tax Tips for consumers:
The above mentioned are the basic requirements in order to qualify for a home loan. Secondly, I was interested to know how big a home loan I could get considering Free Mortgage Appraisal. As soon as I knew how much, I could start searching for a house.
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Can I use an appraisal report I just received but go with another mortgage company?
I wanted to refinance my mortgage with the same company that holds my current mortgage. This company had an appraiser come out and gave me an appraisal. I have NOT signed anything for refinancing, except a credit check and to verify employment. I received the appraisal report. Since starting this, I’ve seen even lower rates and would like to go through another company. Can I use the appraisal report? I haven’t been billed for this report but assume I will be. Shouldn’t I be free to use that appraisal report with another company that I use for the lower interest rate?
It depends on a couple of things.
If you are trying to refinance a conventional loan then the answer is no due to HVCC.
If you are refinancing an FHA or VA loan then you should be able to have the appraisal transferred to another lender.