Remodel & Renovate in 95125>Question Details

Shane Kibble, Home Buyer in Willow Glen, San Jose,...

If I convert half my garage to an office, can I get a home office tax write off?

Asked by Shane Kibble, Willow Glen, San Jose, CA Fri Feb 17, 2012

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There would be expenses involved in the conversion and, probably, expensed involved in using the space as a home offer. These expenses would likely generate tax deductions. How to account for the deductions, how much you can write off and the downside of deducting a home office is something that you need to discuss with a tax professional.

If you are audited, none of the real estate experts who are providing opinions to you will be able to help you.
2 votes Thank Flag Link Sat Feb 18, 2012
Shane:

Your question only asks regarding can you write off use of your home for business. There are limitations to writing off a business use of a home. The most important is that the write off cannot exceed the profit after all other expenses. That said, you can carry unused write off forward. Whether you can write it off also depends on whether it really makes sense to an objective third party. You have to be able to affirmatively answer questions such as, is this a real business? Do you have no other office outside of the home that is your real place of business? Is the write off not going to so negatively affect your home mortgage interest deduction so much that it makes no economic sense for you to claim a business use of home write off? Because the list of test questions is not short, and you should get tax advice whenever you open a business, I suggest you talk to an enrolled agent or CPA. This includes the other part of your question regarding the construction costs. Frankly, I doubt permits matter and legality matters to the IRS, but again, a tax adviser would help answer this question far better than a realtor

I've had Catherine Cochrane as my enrolled agent for years. She has advised my wife and me for our multiple businesses, with offices in our home, for years. She is well respected by the IRS which has kept the auditors away from us whenever we have used her. We have not been so lucky when we have not used her. Her fees are reasonable and her advice is easier to understand than most advisers. Her work phone number is 408-996-7543. If you call her, please say Mitchell and Maggie say Hi.

I wish you prosperity in your new endeavor!

Mitchell Pearce
mitchell@handsonrealtor.com
408-639-0211
2 votes Thank Flag Link Fri Feb 17, 2012
Hi Shane, this question is better answered by your tax professional. You might also find your answer here on the IRS website. There are several articles regarding home office deductions:
http://www.irs.gov/businesses/small/article/0,,id=204169,00.html

I would also like to add that garage conversions are not always attractive to prospective buyers. If I were to convert my garage to partial home office, I would make sure it could easily be converted back to a basic garage prior to resale.
1 vote Thank Flag Link Sun Feb 19, 2012
Well, you wouldn't do it just for the write-off. Talk to your accountant - maybe it's something that you can expense instead.
1 vote Thank Flag Link Sat Feb 18, 2012
Most likely not because garage space is not considered part of the living area necessarily but ask your accountant, they may have a more flexible definition that allows for it.
1 vote Thank Flag Link Sat Feb 18, 2012
Shane:
Have you considered just dedicating some space inside your home to your business? This would eliminate the cost of a garage conversion and protect value of your home. For a business I have, I took pictures of the rooms and portions of the rooms I use for business. When I was audited, I showed the pictures to the auditor and explained the use of the rooms as well as what the family used since we could not use that space for family. He bought the idea and calculated our percent of use of the hoe for us.

Something to discuss with your EA.

Mitchell Pearce
408-639-0211
mitchell@handsonrealtor.com
1 vote Thank Flag Link Sat Feb 18, 2012
This is actually a tax accountant or CPA question. Home offices deductions are calculated as a percentage of the entire home, in other words you have a 2000 square foot home, you use 200' as a dedicated home office, you can then write off 10% of your total home expenses such as power, water, gas, etc. You would be better off speaking to your accountant about what is going to be legally permitted and what is not.

From a real estate perspective converting garages into finished space is a losing proposition. You will actually decrease the value of the property and you may want to bear in mind the expense of doing the conversion and the loss in your homes overall value (unless you have a three or four car garage and even after the conversion you have 2 a two car garage) and compare it to the tax benefits. I'd be surprised if it makes good economic sense to do this. Using an extra bedroom as a home office would make better economic sense though perhaps this isn't an option.
1 vote Thank Flag Link Sat Feb 18, 2012
Shane,

Home office tax deductions are normally calculated as a percentage of the total property used for the expressed purpose of conducting a business. With this said, the problem that may result is whether or not the garage is considered as an actual portion of the square footage of the home's living space. Garages, porches, sheds, etc. would not normally qualify unless they were converted according to code and recognized in the square footage on the tax records.

You could be walking a thin line here and should be certain that before doing so make sure you meet all qualifications. The IRS would be an excellent resource.

Good luck,

Bill
1 vote Thank Flag Link Sat Feb 18, 2012
This has two answers. (1) Can you legally convert your garage to a home office check your city building code? (2) For a tax write off you will need to contact your tax adviser as us agents can only give real estate advice.

All the best to you.
Web Reference: http://www.terrivellios.com
1 vote Thank Flag Link Fri Feb 17, 2012
Do you work from home?

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
0 votes Thank Flag Link Mon May 21, 2012
Clever question. I say consult with my CPA that me and my wife have been using for 23 years at
bethbCPA@aol.com.
tell her Neil Najibi sent you.
0 votes Thank Flag Link Mon May 21, 2012
Shane,

Google 2012 Tax Advice on Home Offices for some basic knowledge on what can be written off and what is defined as a home office. Then find yourself an EA (Enrolled Agent) for tax advice. EA's have earned the right to go before IRS agents to represent the public. They have also taken a comprehensive IRS test which requires retesting every three years and are held to a higher standard of ethics. I've used an EA Agent for years because I know they have to be current on tax laws and have more at risk. So before you build out your garage for a home office find out what is allowed. Keep track of your receipts regardless!!!

Virginia Thomas
Keller Williams
DRE# 01515223
0 votes Thank Flag Link Fri Feb 17, 2012
Hi Shane, as mentioned below, the Realtors can not give you advice on tax related questions. You can get appropriate advice from IRS office itself, free of charge.

Best of luck.
Monica Goyal
DRE 01781926
0 votes Thank Flag Link Fri Feb 17, 2012
Teri Velios said it best:

You first need to determine whether or not you can legally convert half of your garage to office space. Then you need to contact a Certified Public Accountant who has a great deal of experience with State and Federal Income tax or you need to contact an Attorney who has a great deal of experience with State and Federal Income Tax law.

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com
DRE#00901872
0 votes Thank Flag Link Fri Feb 17, 2012
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