How to Figure Home Depreciation
The Internal Revenue Service allows certain taxpayers to deduct depreciation related to a portion of their home on their business tax return. This deduction is generally available only to taxpayers who use their home for a business purpose (typically a home office). The IRS requires that the part of the home deducted must be used exclusively and regularly for business. Taxpayers may claim a deduction over a 39 year depreciation recovery period.
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Instructions
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Calculate the percentage of your home used for business purposes. The IRS will allow any reasonable method to make this calculation. Most taxpayers divide the total floor area used for a business purpose by the total floor area of the property.
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Multiply the basis of the home (generally the cost of the house) by the percentage of your home used for business purposes. This is the depreciable value of your home.
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Divide the depreciable value of your home by 468. This is the depreciation deduction you can claim every month. (This is based on a 39 year depreciation recovery period.)
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Multiply your monthly depreciation deduction by the number of months you used the portion of your home for business purposes. For the first month you begin to use your home for business purposes, you must consider the month as one-half a month for this calculation. (This is known as a mid-month convention.) This is your annual depreciation deduction.
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Tips & Warnings
Individuals may also deduct home depreciation if they rent a portion of their home to boarders. The procedures are identical to those above, although, in general, the depreciation recovery period will be 27.5 years instead of 39 years.
Taxpayers must file IRS Form 4562, Depreciation and Amortization, for the first year you begin to claim a depreciation deduction on your home.
Deductions for depreciation to a home must generally be recaptured as part of income when the home is sold.
