2nd home for exclusive business use

Apr 24, 2006 2 Replies
A

I have a profitable business creating and selling a software product. I currently use part of my home for the business and take a home office deduction for the portion of my home used for business. I am thinking about buying another smaller home to use exclusively for business and to work there instead of my current home. I can work better away from the distractions of home since my wife stays home, we have pets, and are having a child soon. Plus, I will have a lot more room for all the computer equipment, books, and other paperwork that I have. Since I will be using the 2nd home for only business, am I correct to assume that it will cancel my current home office deductions but I can deduct all the expenses and costs for the 2nd home on my Schedule C as my principal place of business? This would include all mortage interest, utilities, repairs, maintenance, and HOA dues. I assume it is like having, buying, or renting office space and that all costs and expenses would be deductible. Thank you.


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E

As an aside, and not really tax related, the first thing that pops into my mind are other possible possible problems resulting from exclusive business of the _entire_ house.

1) Will zoning laws in your area permit such exclusive business use of residential property? You might think that what they don't know won't hurt them and how could they ever find out anyway. They can find out from neighbors who note odd comings and goings at odd hours. No one ever sleeping there, etc. 2) If you obtain insurance coverage for a residential property and have a claim and the insurance company learns that the property was for business use, they may deny the claim. It will be obvious to the claims adjuster that the home is not set up for family living. 3) If you finance the property as residental rather than business property that might be considered obtaining financing through fraud (in my opinion - I am not a lawyer). 4) If you do finance and insure as business property to avoid those problems then #1 above will most certainly apply. I would suggest that you run your idea through a local attorney familiar with the local zoning laws before proceeding.

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-Ernie-

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A

Thanks Paul!

What if I used 90% of the house for business instead of

100%? Then could I deduct 90% of the expenses without worring about using a little for "personal" use? I am currently investigating the zoning and legal issues.

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