Tax deductions from home improvements used as a business.

[Cuddles]

I'm thinking of changing primary residence and converting my current one to run a business. The house needs a lot of work so I'm wondering if I can do the repairs and deduct them as a business expense? Obviously thinks that don't make sense such as laundry or shower would be left out of the deductions.

What happens if a year later I move the business elsewhere and flip the house as a residence? I've lived there more than two years so expect not to pay capital gains tax.

I understand this is perfectly legal for landlords/flippers to do, but the business in question would be more online sales type.

 

[DaveV]

This sounds pretty complicated. You definitely need to run it by you accountant.

 

[wrbtrader]

I'm thinking of changing primary residence and converting my current one to run a business. The house needs a lot of work so I'm wondering if I can do the repairs and deduct them as a business expense? Obviously thinks that don't make sense such as laundry or shower would be left out of the deductions.

What happens if a year later I move the business elsewhere and flip the house as a residence? I've lived there more than two years so expect not to pay capital gains tax.

I understand this is perfectly legal for landlords/flippers to do, but the business in question would be more online sales type.

Go talk to any local business that you see in your city that are already doing the same regardless to the profession they're in.

They may even cough up the contact info for their tax accountant for you to check out and possibly use for your business.

In my city, there's daycares, architects, used bookstore, bed & breakfast and a computer repair shop doing business out of a home converted into business while the owner lives in another home (nearby).

Also, check with local zoning laws for such. Thus, pay a visit to your city hall to see if you need a special license to do such.

My point, you have other issues to consider besides business tax/deductions.

 

[zdreg]

Obviously thinks that don't make sense such as laundry or shower would be left out of the deductions.

tax laws are not meant to make sense.
consult an accountant.

 

[zdreg]

What happens if a year later I move the business elsewhere and flip the house as a residence? I've lived there more than two years so expect not to pay capital gains tax.

be serious. ET is not suitable for complicated tax questions.

 

[Sig]

I'm thinking of changing primary residence and converting my current one to run a business. The house needs a lot of work so I'm wondering if I can do the repairs and deduct them as a business expense? Obviously thinks that don't make sense such as laundry or shower would be left out of the deductions.

What happens if a year later I move the business elsewhere and flip the house as a residence? I've lived there more than two years so expect not to pay capital gains tax.

I understand this is perfectly legal for landlords/flippers to do, but the business in question would be more online sales type.

Strongly agree with the advice to pay a tax advisor. But I can answer a couple of your questions. First, you can't necessarily expense capital expenditures to something like a house, you generally have depreciate that over time. Second, an amount that you depreciate the house pulls down your cost basis by an equal amount, which may impact the max tax you can avoid under the owners exemption if it's appreciated a lot or may have no impact on you at all. For example, let's say you paid $100K for the house. You spend $100K to improve it. If you're using the whole house as a business, at that point you could depreciate 1/30th of $200K and take that off your taxes, $6,667/year. Let's say you then sell it at the end of 2 years for $300K. The basis will be 200K-2/30*200K=$186,666, so your capital gain will be $113,333 vice just $100,000 if you hadn't gone through any of those gyrations. Again check me on the depreciation schedule with a professional because there are a lot of factors that go into that, but the way depreciation is handled when you sell is going to be the same no matter what.

 

[Arnie]

I think he would lose the owners exemption since it is no longer a residence.

 

[Sig]

Strongly agree with the advice to pay a tax advisor. But I can answer a couple of your questions. First, you can't necessarily expense capital expenditures to something like a house, you generally have depreciate that over time. Second, an amount that you depreciate the house pulls down your cost basis by an equal amount, which may impact the max tax you can avoid under the owners exemption if it's appreciated a lot or may have no impact on you at all. For example, let's say you paid $100K for the house. You spend $100K to improve it. If you're using the whole house as a business, at that point you could depreciate 1/30th of $200K and take that off your taxes, $6,667/year. Let's say you then sell it at the end of 2 years for $300K. The basis will be 200K-2/30*200K=$186,666, so your capital gain will be $113,333 vice just $100,000 if you hadn't gone through any of those gyrations. Again check me on the depreciation schedule with a professional because there are a lot of factors that go into that, but the way depreciation is handled when you sell is going to be the same no matter what.

I noticed an error on my part in my example. You can't depreciate the land value, only the improvements. So you wouldn't depreciate 1/30 of $200K, more like 1/30 of $150K if your land was worth $50K.