Daughter-in-law has photography business in operation for several years. She has never qualified for home office as she didn't have any place that was used exclusively for the business. Now they have converted the garage to a studio.
House was purchased in 2014 for $325,000 - they've done extensive upgrades so FMV is about $680,000. Tax bill for last year showed $687,987 with building at $493,070 + land $194,917 (72% building/ 28% land) Ordinarily I wouldn't take tax numbers, but they are actually pretty close to a real estate value. Adjusted basis would also be close, I just haven't gotten the final numbers together.
During 2018 they did a lot of upgrades to the garage/studio in preparation for using it for photo shots and office space - $20K+ and it was put into service 1/1/2019.
Earlier response on this topic said to use the FMV or the adjusted basis whichever is lowest at the time it is converted to home office.
I'm now into doing taxes using Turbo Tax and they ask for date of purchase and price at the time - with no follow up place to enter additional information that I can find. It does show the date of service as 1/1/2019. It is calculating depreciation based on the 2014 numbers using the correct for percentage of square footage.
So do I take their numbers? Do I enter the FMV or adjusted basis whichever is lower?
Any help appreciated.
Yes it is straight 39 years. And I'm clear on using FMV or basis - whichever is lower.
What I'm having a hard time with it turbo tax only asks for purchase date and purchase price. I haven't been able to find anywhere in the program that allows for adjusting that amount. So do I just fudge the program and enter the number I know is the correct number to start with?
Actually the "solely and exclusively" requirement doesn't apply in all
cases. The statute (U.S. Code §280A(c)(2)) says that you can still
have a home office, even without the solely and exclusively
requirement, when it is "used on a regular basis as a storage unit for
the inventory or product samples of the taxpayer held for use in the
taxpayer?s trade or business of selling products at retail or
wholesale, but only if the dwelling unit is the sole fixed location of
such trade or business."
I don't use Turbo Tax. I can only tell you that there are times when
dates need to be fudged. E.g., I use software that asks for the original
date of divorce. The date is used to determine whether someone is
grandfathered for alimony payments and receipt. But, if someone went to
court in 2019 and modified the decree to use the new rules, one has to
enter the modified date rather than the original date.