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Depreciating Additions for Home Business

One quick tax thing that bugs me. Despite spending about $18k for an office in 2006, only $3k (the carpeting) can be deducted immediately. The other $15k is depreciated over 39 (yes, thirty nine) years. It's "structural," so it gets depreciated. The carpeting was not.

WTF sense does that make? We paid cash, my self-employed business still made a very healthy profit, and the $15k was a true expense. Though Carey and I plan to stay in the house for 39 years, that's an awfully long time - and when you sell the house, BAM, you stop being able to depreciate the cost. Then the government taxes you on the sale of your home, including the extra value you added by doing the addition in the first place. So far as I know, you can't deduct the remaining depreciation value when you sell the house.

2 Responses to "Depreciating Additions for Home Business"

  1. You can't instantly deduct the full price of the improvements because they've added value to your house.

    If you put in $15K to improve your office and then sell your house tomorrow, than presumably, you should get $15K more for your house. If so, the cost of the improvement was effectively $0.

    And since your office is in your your primary residence and you're planning to be there for more than two years, the government will never tax you on the appreciation you've realized due to your home improvements:
    http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

    So, it wouldn't be fare if the government allowed you to instantly deduct the $15K from your taxes since net cost of those improvements is far less than $15K.

  2. http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

    Good stuff. For some reason I thought you were taxed when you sold your home.

    I guess flippers can immediately deduct the cost of their goods, structural or otherwise.


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