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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Alpha Girl on May 23, 2017, 12:53:50 PM

Title: New home: larger home office to maximize tax deduction?
Post by: Alpha Girl on May 23, 2017, 12:53:50 PM
My 3 person family is looking to move in the next year or so, as soon as the baby is ready to move out of our bedroom.  Spouse is self-employed and works from home full-time, so we take the home office deduction.  My question is, as we're shopping for a home, does it make sense to purposely maximize the ratio of home office to home size in order to get a larger deduction on our overall home costs, if it means buying a larger home than we otherwise would?  Any math whizzes out there who can figure out what the formula should be to figure this out?  We would plan to own the home for 10+ years, although the number of years using the home office (vs. a co-working or real office space) is a question.
Title: Re: New home: larger home office to maximize tax deduction?
Post by: katsiki on May 23, 2017, 01:41:41 PM
I would run the numbers.  HO deduction is usually not worth a whole lot.
Title: Re: New home: larger home office to maximize tax deduction?
Post by: nobody123 on May 24, 2017, 07:15:58 AM
Personally I wouldn't buy a bigger house just for the deduction, especially if you aren't sure how long you will be taking the deduction.

Since the IRS "safe harbor" amount for a home office deduction is \$1500, I would just assume that is what you will get to deduct.  If you aren't currently deducting more than that in your current home, the odds of you doing so in your new place is slim.  And the \$375 or so you save on that \$1500 deduction is in no way going to offset the extra money you'd have to put out on a larger house.

To really do the calculation on whether a home office that is 20x10 instead of 10x10 ends up financially better for you, you need to calculate the home office square footage as a percentage of the home total square footage.  Chances are, a house with a large room for a home office is going to be bigger overall, so the percentage might actually be lower than the house with the smaller office.  Use estimated utility and property tax bills to guess how much you could deduct.  You might find that the higher utility bills in the bigger house make up for the lower HO percentage, or you might not.  Either way, I don't think the math will ever say that the home office deduction can subsidize a larger house.
Title: Re: New home: larger home office to maximize tax deduction?
Post by: Dicey on May 24, 2017, 09:12:17 AM
I did it. I was in an outside sales position where my employer was in another state. I had a mandatory office and storage for samples. My adorable 880 sf, 2+1 condo, with a 1-car garage eventually became too small. I sold it and bought a 1700 sf 4+2 townhouse with a generous 2-car garage in a slightly less expensive community. Yes, everything cost more in the new pkace, but a percentage of the increased mortgage, taxes, utilities and insurance were also a write-off. To offset some of the mortgage payment, I rented two of the bedrooms to a roommate for a couple of years, so my OOP wasn't too much higher than for the condo.

In my case, it was mostly the storage space I needed. The size of the office was about the same in each location.

What does your husband do that he "needs" an office? Does it really need to be bigger than you have now? Can that need be demonstrated in case of a tax audit? In your situation, it's hard to see how trading up is the most mustachian choice.
Title: Re: New home: larger home office to maximize tax deduction?
Post by: seattlecyclone on May 24, 2017, 09:28:47 AM
Don't buy more home office than you need. Treat it just like any other business expense. You often have to spend money to make money, but you can often make more money by keeping an eye on expenses and only spending what's actually necessary.