Writing off part of your property

Sfoppema

Sfoppema

Branched out member
Location
Central MA
I'm closing on a house in MA at the end of this month. It's a big property in the woods and I'll be keeping my trucks there and bringing/storing logs/firewood on the property. Everything will be there. There are a few outbuildings including a decent sized barn that I'll find some use for relative to gear storage.

Previously I kept my stuff cheap outside at a farm that had extra/unused space down the street from where I live.

Anybody know the rules about writing off part of your property? I've talked with a few people about it and some people said writing off part of your personal property for business throws up a red flag and draws more attention from the IRS and might be more trouble than it's worth.

Any words of wisdom on this?
 
I've never done it at the house because I don't have an area that is 100% dedicated to business only. I'll move stuff around, some personal stuff, etc...

If you are going to do it, use some of the outbuildings for nothing except business equipment. If you have one building you are sharing, I'd paint a line on the floor and say "this side of the line is dedicated to business only - other side is not". That doesn't mean you can't store business stuff on the "not" side...but it does mean you shouldn't put any personal stuff on the business side.

I have also heard it is a red flag and I think understand why....it is often abused. For example: A client who owns a business. I planted a tree in the front yard of their house. He asked that I send the invoice to his business PO box and in the business name. I'm willing to bet he is writing that off as a "home office" expense. (Ultimately, that is not mine to worry about, so I just did what he asked and will let him, his accountant and the IRS sort it out if need be.). Then you have people that will have a room in their house designated as an "office"...but it is also the guest bedroom, the room where the kids go to play video games while parents entertain in the living room. So it is not dedicated use.

All that to say, it may be a red flag, but if you do it right, it should be easy to show and defend why you did what you did - "nothing but business-related" happens in these designated square feet. But ultimately, sit down with your accountant to make sure you know and follow the rules. Figure out how much you will save in taxes. Then decide is that savings worth an audit...even if you do every little thing by the book, people tell me and IRS audit is not a walk in the park. I've decided that even if I have dedicated space within the house and garage (it wouldn't be much for our place!), the couple hundred of dollars per year I'd save is not worth greatly increasing the odds of an audit.
 
ATH said:
I've never done it at the house because I don't have an area that is 100% dedicated to business only. I'll move stuff around, some personal stuff, etc...

If you are going to do it, use some of the outbuildings for nothing except business equipment. If you have one building you are sharing, I'd paint a line on the floor and say "this side of the line is dedicated to business only - other side is not". That doesn't mean you can't store business stuff on the "not" side...but it does mean you shouldn't put any personal stuff on the business side.

I have also heard it is a red flag and I think understand why....it is often abused. For example: A client who owns a business. I planted a tree in the front yard of their house. He asked that I send the invoice to his business PO box and in the business name. I'm willing to bet he is writing that off as a "home office" expense. (Ultimately, that is not mine to worry about, so I just did what he asked and will let him, his accountant and the IRS sort it out if need be.). Then you have people that will have a room in their house designated as an "office"...but it is also the guest bedroom, the room where the kids go to play video games while parents entertain in the living room. So it is not dedicated use.

All that to say, it may be a red flag, but if you do it right, it should be easy to show and defend why you did what you did - "nothing but business-related" happens in these designated square feet. But ultimately, sit down with your accountant to make sure you know and follow the rules. Figure out how much you will save in taxes. Then decide is that savings worth an audit...even if you do every little thing by the book, people tell me and IRS audit is not a walk in the park. I've decided that even if I have dedicated space within the house and garage (it wouldn't be much for our place!), the couple hundred of dollars per year I'd save is not worth greatly increasing the odds of an audit.
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Can you save me a lot of writing, I will put a great big second to all of that. Especially the part where you recommend meeting with an accountant to decide what is best!
 
It depends on your business structure. My CPA had me sign a lease agreement from the business to myself. The business pays me rent, which goes down as “other income, or rental income.” This allows me to take less in pay from the business, lowering the payroll taxes. I do get taxed on the other income but it gets canceled out somewhere else.
She was VERY clear that there needed to be a rental agreement. The business rents the out buildings a land for logs, chips, etc. sure there are a few personal items such as welders, hand tools, etc in the shop. However this could be lent to the business for maintance.
 
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evo said:
.....sure there are a few personal items such as welders, hand tools, etc in the shop. However this could be lent to the business for maintance.
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If you were audited, my assumption is those aren't even noticed...normal business-related equipment ownership is probably irrelevant. The Harley, SeaDoos, sofa, big screen TV, and collection Sasquatch memorabilia displayed in glass cases are more likely to raise the attention of an auditor.
 
ATH said:
If you were audited, my assumption is those aren't even noticed...normal business-related equipment ownership is probably irrelevant. The Harley, SeaDoos, sofa, big screen TV, and collection Sasquatch memorabilia displayed in glass cases are more likely to raise the attention of an auditor.
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Sasquatch collections are written into my business plan.
 
I've been wondering this same thing lately, as logs, chips, and vehicles are taking over more square footage, and I'd like to put up a fence and increase square footage used.

I suspect that the amount paid in rent has to be 'customary' or some such thing, for the area. Hard to establish market value on things.

My water well's pressure tank and filtration system are in my barn, along with bikes and personal things. I could add an outbuilding for personal stuff, giving me more dedicated space.

I'll have to ask my accountant.

Being 'tight' on everything, like mileage logs, might be a factor.
 
southsoundtree said:
....

My water well's pressure tank and filtration system are in my barn, along with bikes and personal things. I could add an outbuilding for personal stuff, giving me more dedicated space.
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certainly ask the accountant! But I'm not sure that you can't use the barn for both...just that within the barn the space used for business has to be dedicated to that.

Make it easy. Somebody has a 2000 sqft house. They have a truly dedicated home office where nothing except work happens. That space is 200 square feet. Therefore, 10% of their house is being used for business. Therefore 10% of the expenses (mortgage, power bill, property taxes, etc... are considered business expenses). What I don't know is how a garage and outbuildings play into that. Certainly the 5000 sqft dirt floor barn isn't worth the same $/ft that the house is...but I don't know how that is calculated. that is why we have accountants to tell us that stuff!

(Time for an accountant joke: "What is the difference between an introverted accountant and an extroverted accountant?...........the extroverted one looks at the other guys shoes when talking to him." My brother-in-law who is an accountant told me that. My reply is: "If I wanted to work with people, I would have been an accountant or engineer. Instead, I went to forestry school!")
 
Several years ago I started taking the business use of home deduction. At my CPA's direction I supplied them with the square footage of business use as well as utility bills that they figured a percentage of. Wish I had done this years ago.
 
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southsoundtree said:
I've been wondering this same thing lately, as logs, chips, and vehicles are taking over more square footage, and I'd like to put up a fence and increase square footage used.

I suspect that the amount paid in rent has to be 'customary' or some such thing, for the area. Hard to establish market value on things.

My water well's pressure tank and filtration system are in my barn, along with bikes and personal things. I could add an outbuilding for personal stuff, giving me more dedicated space.

I'll have to ask my accountant.

Being 'tight' on everything, like mileage logs, might be a factor.
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Or a loft for personal things.. doesnt affect Sqft of the buildings foot print.
 
Home office used to be a red flag. But now it is so commonly factual that it is much less so.

I'll bet a lot of tree people could meet the requirements and write of percentages of their land and buildings.
 
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I really probably should write off part of my property. I have a 1/4 acre that is just my wood lot/chip pile. We have a 40x60 barn that if we stored the tractor in a different place would have just business related stuff in it. Firewood storage, equipment storage, etc.
 
Have you ever thought of the tax advantages of having your business owning the house and land? That is the way i am set up...I have my business set up as a S Corp, and it owns the house, shop, and land. Then I turn around and pay a reasonable rent to the business for living there.
That way all of the expenses get paid by the business.
I might add that I do live in a shop house, and only a little over a fourth of it is living sq. ft.
 
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