Friday, April 30, 2010
Capital Gains Consequences of Home Office Deduction
My companies HQ are in CA. Software support engineer. I've been fortunate enough to work from a home office since my daughter was 4 weeks old. She used to stand on the back of my chair with her arms wrapped around my neck while I would talk with customers. It doesn't get any better than that.
I've read your information about a home office but what are the consequences of claiming a home office? I heard that the nightmare actually occurs when I go to sell my home.
Can you provide some insight into that?
Yes, Paul. I remember those work-at-home-with-small-children days. They were great. I still work from my home.
Before I answer your question I'd like to request of you and other indies: When you say you heard or read something somewhere I would really like to know where you read or heard it. It helps me guide indies if I know whether they got wrong info from Aunt Tillie or a CPA or the yoga teacher's husband who happens to be an attorney.
As I say in my book Self-employed Tax Solutions : "Deducting OFFICE-IN-THE-HOME expense for a residence that you own may have an impact on your the amount of taxes you pay when you sell your home. The impact has been minimized by new regulations regarding depreciation of a home office, and almost always the home office deduction outweighs any capital gains tax it may trigger when the home is sold. Even so, be sure your tax pro takes the sale consequences into consideration when preparing your return."
Since I wrote that the tax regs regarding home office sale have been liberalized even more. Of course, the regs may again change in the other direction. I can say that in all my years of practice every indie client had a tax advantage by deducting home office that was not outweighed by capital gains tax at sale.