If you repair a loose floorboard to make your home office safer, that's tax-deductible. It's a different story if you renovate with brand new flooring to make it look classier. The rule for business property is that repairs are deductible, improvements are not. That holds true even if the business property is your house. You can, however, depreciate the renovation.
If you have, say, a $2,300 office makeover, you start depreciating it the first month that it's finished and usable. You figure your first-year deduction based on which month this happens. For example, according to IRS Publication 587, if you move into your renovated office in May, you claim 1.605 percent of the improvement for the first year -- $36.91. If you also take a business write-off for depreciation of your home, that's a separate calculation from depreciating improvements.
Depreciating your home office or improvements to your home office requires playing the long game: you take the write-off over 39 years. Using the formula in IRS Publication 946, you deduct a percentage of the original basis -- the cost of the renovations -- every year. This works out to a little over 2 percent for the first few years, then slowly goes down. You report depreciation with other home office expenses on Form 8829, then give the total deduction on Schedule C.
You can write off a business loss against your other income, but not if your home office deduction is the reason for the red ink. That's why you report the deduction separately from other business expenses on Schedule C. If, say, you have $12,000 in income, $10,000 in expenses and a $3,000 in home-office expenses, you carry $1,000 of the home office bills forward to next year. That includes depreciation.
Starting with the 2013 tax year, the IRS is offering a simpler alternative for the home office deduction: just take $5 a square foot, up to $1,500. This eliminates a lot of math and paperwork, but it also blocks you from taking a depreciation write-off. You're more likely to come out ahead if you go old-school. If you're not sure, do a rough draft of your taxes using each method and see which one benefits you most.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.