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Posted by kcvale on April 15, 2008, 7:29 am
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When I filed my taxes last year my income was pretty low because I had
recently returned to the work force as an independent contractor
working from home. My startup costs included a computer, printer and
so forth. However, my tax preparer (H&R Block) said I couldn't take
any of it off since my income was so low. They didn't say anything
about carrying it over to this year.
I'm using turbo tax this year and it has a section for "Expenses not
deducted last year". Using these deductions will save me some money
this year. Is it too late to use these deductions? Do I have to have
filed form 8829 with my 2006 return to take the deductions? Or do I
have to file an amended return- and is it worth the effort and
possible scrutiny that an amended return might bring?
Thanks very much,
kc
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Posted by Paul Thomas, CPA on April 15, 2008, 7:50 am
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> When I filed my taxes last year my income was pretty low because I had
> recently returned to the work force as an independent contractor
> working from home. My startup costs included a computer, printer and
> so forth.
Those you listed are capital expenditures, and should have been booked last
year and depreciation started then. You would still have some depreciation
expenses to take in 2008 and going forward.
> However, my tax preparer (H&R Block) said I couldn't take
> any of it off since my income was so low.
Regular depreciation is mandatory, not affected by how low your income was,
and can create a loss.
> They didn't say anything about carrying it over to this year.
> I'm using turbo tax this year and it has a section for "Expenses not
> deducted last year".
Interesting.
For cash basis taxpayers, you report income in the year you collect it, and
take deductions for expenses actually paid in that year.
You are prohibited from deducting in 2007 "Expenses not deducted last year".
Exceptions apply for depreciation or amortization on capital expenditures.
> Using these deductions will save me some money
> this year. Is it too late to use these deductions?
Pretty much, yes.
There will be depreciation deductions though on your capital items, your
computer, printer and other furniture, fixtures and equipment.
> Do I have to have filed form 8829 with my 2006 return to
> take the deductions? Or do I have to file an amended
> return- and is it worth the effort and possible scrutiny
> that an amended return might bring?
For expenses that properly belong in the prior year, you'll have to amend
that year's return.
--
Paul A. Thomas, CPA
Athens, Georgia
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by removeps-groups@yahoo.com on April 15, 2008, 12:55 pm
Please log in for more thread options On Apr 15, 4:29 am, kcv...@yahoo.com wrote:
> When I filed my taxes last year my income was pretty low because I had
> recently returned to the work force as an independent contractor
> working from home. My startup costs included a computer, printer and
> so forth. However, my tax preparer (H&R Block) said I couldn't take
> any of it off since my income was so low. They didn't say anything
> about carrying it over to this year.
> I'm using turbo tax this year and it has a section for "Expenses not
> deducted last year". Using these deductions will save me some money
> this year. Is it too late to use these deductions? Do I have to have
> filed form 8829 with my 2006 return to take the deductions? Or do I
> have to file an amended return- and is it worth the effort and
> possible scrutiny that an amended return might bring?
In addition to Paul's excellent post, the form you need is 4562
(depreciation), not 8829 (business use of your home). Use 8829 to
deduct the business part of your mortgage, rent, condo fees,
utilities, and so on, and also depreciation of the business part of
your home. Be aware that if you take depreciation on your home on
form 8829 then you have to pay a 25% tax on the depreciation when you
sell your home, and if your income is low that enough that you're in
the 15% tax bracket, then it's a net loss to take depreciation on your
home. And if your net income in your amended return turns out to be
negative, you can carryover the loss to previous years or future years.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by D. Stussy on April 15, 2008, 5:59 pm
Please log in for more thread options > On Apr 15, 4:29 am, kcv...@yahoo.com wrote:
> > When I filed my taxes last year my income was pretty low because I had
> > recently returned to the work force as an independent contractor
> > working from home. My startup costs included a computer, printer and
> > so forth. However, my tax preparer (H&R Block) said I couldn't take
> > any of it off since my income was so low. They didn't say anything
> > about carrying it over to this year.
> > I'm using turbo tax this year and it has a section for "Expenses not
> > deducted last year". Using these deductions will save me some money
> > this year. Is it too late to use these deductions? Do I have to have
> > filed form 8829 with my 2006 return to take the deductions? Or do I
> > have to file an amended return- and is it worth the effort and
> > possible scrutiny that an amended return might bring?
>
> In addition to Paul's excellent post, the form you need is 4562
> (depreciation), not 8829 (business use of your home). Use 8829 to
> deduct the business part of your mortgage, rent, condo fees,
> utilities, and so on, and also depreciation of the business part of
> your home. Be aware that if you take depreciation on your home on
> form 8829 then you have to pay a 25% tax on the depreciation when you
> sell your home, and if your income is low that enough that you're in
> the 15% tax bracket, then it's a net loss to take depreciation on your
> home. And if your net income in your amended return turns out to be
> negative, you can carryover the loss to previous years or future years.
Some items on form 8829 do carry forward, but to properly claim any expense
carried forward, one has to file the 8829 for the year the expense was
originally incurred. Your tax preparer at H&R Block was correct in that you
may not have a 2006 deduction, but the form should have been completed sot
hat the carryforward could be listed. That does require an amended return.
Sale of home: Note that the depreciation recapture is on the amount
actually allowed (or allowable) in prior years since May 8, 1997, and that
IRC 280A serves to disallow amounts that would otherwise cause a loss.
However, in the year of sale, the net profit/loss must be computed BEFORE
one reaches form 8829 (in order to appear on line 8), so depreciation
carried into the year of sale isn't recaptured (nor recapturable) but is
allowed (subject to the limitation on losses) in the year of sale,
especially if the gain on sale is less than the accumulated depreciation
carried forward at tier 3. This is quite different than the treatment for
passive losses because the taxpayer gets his full loss upon disposition of
the activity; not so with business use of home.
Business use of home generally does not generate an NOL. Tier 1 expenses
(those otherwise allowable as itemized deductions) can, but depreciation as
tier 3 CANNOT, nor can tier 2 expenses. Therefore, depreciation will never
cause a carryback.
Note also that because of the forced carry-forward, it's possible to take a
depreciation deduction for an asset not owned at the time of the deduction!
Additionally, just because a taxpayer stops using his home for business does
not mean that the carried-forward amounts disappear. They continue to carry
until they can be offset or the taxpayer dies. This also means that once a
taxpayer has a 280A carryforward, he will continue to file form 8829 until
the carryforward is fully offset by business income (including the sale of
the home).
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by removeps-groups@yahoo.com on April 17, 2008, 6:33 pm
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> Sale of home: Note that the depreciation recapture is on the amount
> actually allowed (or allowable) in prior years since May 8, 1997, and that
> IRC 280A serves to disallow amounts that would otherwise cause a loss.
> However, in the year of sale, the net profit/loss must be computed
> BEFORE
> one reaches form 8829 (in order to appear on line 8), so depreciation
> carried into the year of sale isn't recaptured (nor recapturable) but is
> allowed (subject to the limitation on losses) in the year of sale,
> especially if the gain on sale is less than the accumulated depreciation
> carried forward at tier 3. This is quite different than the treatment for
> passive losses because the taxpayer gets his full loss upon disposition of
> the activity; not so with business use of home.
I'm having difficulty with the above, but see my example below.
> Business use of home generally does not generate an NOL. Tier 1
> expenses
> (those otherwise allowable as itemized deductions) can, but depreciation
> as
> tier 3 CANNOT, nor can tier 2 expenses. Therefore, depreciation will never
> cause a carryback.
Thanks for the pointers. Form 8829 looks simple but is surprisingly
confusing, and I worked out a scenario.
Here's my scnenario: 10k receipts, 5k cost of goods, 4k business
operating expenses, so tenative profit is 1k. Business use of home is
1100 (mortgage etc), 600 (repairs etc), 700 (depreciation), for total
of 2400. Only 1100 is allowed, and 1300 is carried over to next year.
Details ==>
Schedule C.Line1 = 10000 (gross receipts)
Schedule C.Line4 = 5000 (cost of goods)
Schedule C.Line7 = 5000 (gross income)
Schedule C.Line28 = 4000 (total expenses)
Schedule C.Line29 = 1000 (tentative profit)
Form 8829.Line8 = 1000 (tentative profit)
Form 8829.Line14 = 1100 (expenses that would normally go on Schedule
A)
Form 8829.Line15 = max(0,Line8-Line14) = 0
Form 8829.Line25 = 600 (business expenses on home but not
depreciation)
Form 8829.Line26 = min(Line15,Line25) = 0 (allowable operating
expenses)
Form 8829.Line27 = Line15 - Line26 = 0 (limit on excess casualty
losses and depreciation)
Form 8829.Line29,31 = 700 (depreciation from part III)
Form 8829.Line32 = min(Line27,Line31) = 0 (allowable excess casualty
losses + depreciation)
Form 8829.Line33 = Line14 + Line26 + Line32 = 1100 (allowable expenses
+ casualty loss portion)
Form 8829.Line35 = Line33 - Line34 = 1100 (allowable expenses)
So the tier 1 expenses (Line14) have generated an NOL. If Line8 was
800 then Line35 would have been 1000, and the tier 2 and 3 expenses
don't generated a loss.
Form 8829.Line42 = Line25 - Line26 = 600 (carryover of operating
expenses)
Form 8829.Line43 = Line31 - Line32 = 700 (carryover of depreciation)
Schedule C.Line30 = Form 8829.Line35 = 1100
Schedule C.Line31 = -100
Question ==>
There is a depreciation carryforward of $700.
When the taxpayer sells their home, and suppose for my scenario that
their capital gain is 0 because the home office is part of their main
home and the 250k exclusion, then do they have to pay 25% of $700?
Where do they get to deduct the $700?
> Note also that because of the forced carry-forward, it's possible to take a
> depreciation deduction for an asset not owned at the time of the deduction!
> Additionally, just because a taxpayer stops using his home for business does
> not mean that the carried-forward amounts disappear. They continue to carry
> until they can be offset or the taxpayer dies. This also means that once a
> taxpayer has a 280A carryforward, he will continue to file form 8829 until
> the carryforward is fully offset by business income (including the sale of
> the home).
What is the taxpayer stops using his home for business at some point?
Maybe they move into a retail office, or something. What happens to
the carryforwards (lines 42 and 43 of form 8829)?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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