2 year IRS rule-home based businesses?

Discussion in 'Business Operations' started by BAMARED, Aug 29, 2002.


    BAMARED LawnSite Member
    Messages: 206

    Does anyone know about a tax law that states if you claim part of your house payment & other related items that are used in your home-based business, that you have to pay these deductions back to the government if you sell your house within 2 years of closing your home-based business? (I know that's a long sentence.) But do you guys understand what I'm asking? How about if you claim all this stuff and sell your house but continue this business?

    Of these home-based business deductions, I wonder how much that you will actually get back?

    I'm going to see a $75/hour accountant in the next few days to inquire about opening up this home-based, part time lawncare business and I want to have done my homework and ask the right questions. Is there any questions that I should ask this accountant regarding a home-based, part time lawncare business that you would recommend?

    Thanks in advance,

  2. GarPA

    GarPA LawnSite Silver Member
    from PA
    Messages: 2,585

    I've Been told that claiming the home based office deduction is one of things you can do if you want to significantly raise your chances of an IRS audit....my acct says the IRS goes bonkers on this deduction ...I guess allot of people abuse the rules....your acct should know if this is a red flag deduction that could cause an audit..I have enough other deductions so I dont take it...not worth risk of having to got thru the time consuming hassle of an audit
  3. larrv45390

    larrv45390 LawnSite Member
    from Ohio
    Messages: 45

    you have to pay capital ganes on the portion of your home that you used even if you didnt make any one the sell of you home
  4. Brickman

    Brickman LawnSite Bronze Member
    Messages: 1,249

    I too have heard the IRS will flag you for an audit a lot faster if you use the "home office" for a deduction. I DO NOT need the hassle of an audit.
    If you build a garage for this purpose or a shed or what ever you use you could put it on your deductions as storage or some thing like that.
  5. Dennis

    Dennis LawnSite Member
    from Ga.
    Messages: 155

    I use the home office deduction, mainly because I can write actual miles versus only miles between jobs, I live 30 miles from most of my lawns, that is a lot of wasted miles I couldn't claim.
    My office deductions is only 3% of my home expenses so I'm not gaining a lot there.

  6. Brickman

    Brickman LawnSite Bronze Member
    Messages: 1,249

    Dennis check with your CPA, I am sure you can claim your miles from home to work and back. I always do. If you don't start at home where do you start? How would you decide on where to start.

    I live 20 miles from town, when I was doing LCO I claimed round trip miles.
  7. MPhillips

    MPhillips LawnSite Member
    from zone 7
    Messages: 94

    About 2 years ago that the IRS loosened restrictions on the definition of home office to allow for the deduction even if it wasn't the "primary" place of business for your company, as had been the definition before. My CPA told me that since then it is not a red flag issue with the IRS like it had been. At least I haven't been audited...knock on wood

    Claiming a portion of your home, utilities, and repairs to the home for the home business reduces the basis of your home's value at the time of sale. To get around that simply don't take the deduction the year prior to the home's sale, and the basis will be unaffected.
  8. LawnLad

    LawnLad LawnSite Senior Member
    Messages: 738

    This may seem to be a silly idea... but why not have the business pay you rent for the space it occupies. The rent doesn't have to include utilities either. Claim the income as rental income on a schedule E for your personal taxes - it's a write off for the business. Offset your personal gain/income with deductions from your rental income with repairs to the property required to keep your tenant happy. No red flags - and only one extra step. I'd be willing to bet you could even generate a loss on your rental property if you tried.

    And if your business winds up making improvements to the property from which it leases - than these would be classified as facility repair and/or maintenance. You choose which pocket the money comes out of.
  9. ranger520

    ranger520 LawnSite Member
    Messages: 231

    I have discussed this very thing with my acct and he basically said dont do it. He said that there are enough other deductions out there that you do not need to do this. One thing you can do is you can rent your house out to the bus for on day a month for a bus meeting etc.. for the cost of your loan payment. I am looking into this right now. I do not know how it works but some friends of mine are doing it right now and it is easier then depreciationg that portion of your home, also, if you write off a portion of your home and sell your home, your bus owns part of what you get for the house and this is a real mess.

  10. bruces

    bruces LawnSite Senior Member
    Messages: 648

    Ranger 250 wrote


    Check with your accountant on this one. This definitely won't fly.

    Lawnlad wrote

    There are also problems with this. If it sounds too good to be true, it probably is. Check with your tax advisors to see what they think will fly.

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