Publication 587 - Business Use Of Your Home - 2002 Page 10
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27gives it a new or different use. Examples of improvements
To figure the depreciation deduction, you must first
are replacing electric wiring or plumbing, adding a new roof
figure the part of the cost of your home that can be
or addition, paneling, or remodeling.
depreciated (depreciable basis). The depreciable basis is
If you make repairs as part of an extensive remodeling
figured by multiplying the percentage of your home used
or restoration of your home, the entire job is an improve-
for business by the smaller of the following.
ment. You must carefully distinguish between repairs and
•
The adjusted basis of your home (excluding land) on
improvements. You also must keep accurate records of
the date you began using your home for business.
these expenses. These records will help you decide
•
whether an expense is a deductible or capital (added to the
The fair market value of your home (excluding land)
basis) expense.
on the date you began using your home for busi-
ness.
Example. You buy an older home and fix up two rooms
as a beauty salon. You patch the plaster on the ceilings
Depreciation table. If 2002 was the first year you used
and walls, paint, repair the floor, install an outside door,
your home for business, you can figure your 2002 depreci-
and install new wiring, plumbing, and other equipment.
ation for the business part of your home by using the
Normally, the patching, painting, and floor work are repairs
appropriate percentage from the following table.
and the other expenses are permanent improvements.
However, because the work gives your property a new
MACRS Percentage Table for
use, the entire remodeling job is a permanent improvement
39-Year Nonresidential Real Property
and its cost is added to the basis of the property. You
cannot deduct any portion of it as a repair expense.
Month First Used for Business
Percentage To Use
Adjusting for depreciation deducted in earlier years.
1
2.461%
Decrease the basis of your property by the depreciation
2
2.247%
you deducted, or could have deducted, on your tax returns
3
2.033%
under the method of depreciation you properly selected. If
4
1.819%
you took less depreciation than you could have under the
method you selected, decrease the basis by the amount
5
1.605%
you could have taken under that method. If you did not take
6
1.391%
a depreciation deduction, decrease the basis by the
7
1.177%
amount you could have deducted.
If you deducted more depreciation than you should
8
0.963%
have, decrease your basis by the amount you should have
9
0.749%
deducted, plus the part of the excess deducted that actu-
10
0.535%
ally decreased your tax liability for any year.
If you deducted the incorrect amount of depreciation,
11
0.321%
see How Do You Correct Depreciation Deductions? in
12
0.107%
Publication 946.
Multiply the depreciable basis of the business part of
Fair market value defined. The fair market value of your
your home by the percentage from the table for the first
home is the price at which the property would change
month you use your home for business. See Table A-7a in
hands between a buyer and a seller, neither having to buy
Appendix A of Publication 946 for the percentages for the
or sell, and both having reasonable knowledge of all nec-
remaining tax years of the recovery period.
essary facts. Sales of similar property, on or about the date
you begin using your home for business, may be helpful in
Example. In May, George Miller began to use one room
figuring the property’s fair market value.
in his home exclusively and regularly to meet clients. This
room is 8% of the square footage of his home. He bought
Figuring the Depreciation Deduction
the home in 1993 for $125,000. He determined from his
for the Current Year
property tax records that his adjusted basis in the house
(exclusive of land) is $115,000. In May, the house had a
If you began using your home for business before 2002,
fair market value of $165,000. He multiplies his adjusted
continue to use the same depreciation method you used in
basis (which is less than the fair market value) by 8%. The
past tax years.
result is $9,200, his depreciable basis for the business part
If you began using your home for business in 2002,
of the house.
depreciate the business part as nonresidential real prop-
George files his return based on the calendar year. May
erty under the modified accelerated cost recovery system
is the 5th month of his tax year. He multiplies his deprecia-
(MACRS). Under MACRS, nonresidential real property is
ble basis of $9,200 by 1.605% (.01605), the percentage
depreciated using the straight line method over 39 years.
from the table for the 5th month. The result is $147.66, his
For more information on MACRS and other methods of
depreciation, see Publication 946.
depreciation deduction.
Page 10
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