Home Office: Using your personal assets for business
Whether you claim a business office in the home or are simply working at home, say because of COVID-19, you likely have some former personal assets that you now use for business.
Ah, new tax deductions!
Yep. Say you don’t claim a home-office deduction but now you are working at home and sitting in the fancy chair you inherited from your grandmother. (Whoo Hoo Grandma, also sorry for your loss.)
Let’s say you use the fancy chair 85% for business purposes. Can you depreciate 85% of that chair?
Yes. (Yay!)
Grandma’s estate was appraised and this chair had a value of $10,000 when you inherited it. It’s an antique, so it’s not gone down in value. Key word here is the chair was deemed an Antique.
Depreciating a Formerly Personal Asset
When you convert the fancy chair to 85% business use, the law sees you as placing the item in service in your business. That means you can begin depreciating the asset and claiming your tax deductions.
Now a $10,000 Chair may seem excessive to claim, Right? However, if it is considered ‘ordinary and necessary business use’ it can be used as a business asset and therefore, depreciated as such. We have another article that will explain this a little more. Just click here.
To determine the basis to use for depreciation, use the lesser of
- fair market value on the date of conversion from personal to business use
- adjusted basis of the property (generally the amount you paid for the asset plus the cost of any improvements).
With the fancy chair, your adjusted basis is the inherited value.
Here is where it starts to get a little tricky!
There is a whole section on depreciation of these assets, but let’s face it that is what a good bookkeeper is for. Am I right?
Contact us and we will gladly assist you in working through the depreciation maze.
For more information, this article and many more to help your business grow are on our website cdprofessionalservices.com