Technical tax question about the home office deduction for landlords

[Miss Growing Green]

I have the book "Every Landlord's Guide to Tax Deductions" - and it's great.  There is something that is unclear to me in the home office deduction chapter though- it says you can only claim the home office deduction if your rental profits exceed your rental deductions for the year.  BUT, you can keep track of your home office deductions and carry them forward to subsequent years when your rental IS making a profit and deduct them then.  From the book:
"So, whether or not your business is making money, you should keep track of your home office expenses and claim the deduction on your tax return".

My question is:
Do you claim the deductions in the year they incur, even if you don't turn a profit that year?  And somehow the tax software knows to carry it forward to a year when you do make a profit?

OR

Do you keep track of everything and start claiming it in the year you do make a profit?

Thanks!

[Mirwen]

Good tax software will carry it forward for you, but most of the free online software does not.  This is a question for the makers of the software.  Do you use Turbo Tax?  They have excellent customer service for these issues.

If you find that your software does not have this function, you would just enter it manually in the year you have the profit and label it as a carry forward and the year.  Most carry forwards have a year limit, typically 3.  I can't remember what the limit is for this deduction off the top of my head, but it should be easy to find.

Make sure your home office is used exclusively for business purposes.  Mixed use doesn't count.

[Miss Growing Green]

Mirwen,

I use H&R block online.  I guess my real question is: say I am doing my taxes this year for tax year 2013. Can I claim the home office deductions from 2012 AND 2013, if I didn't claim them for 2012 but kept track of them?  Or do they have to be claimed in the year they were incurred?

[Cheddar Stacker]

All individual taxpayers must file on a cash basis, which means all your revenues and expenses must be claimed in the year they were received/incurred. You have to file the forms for 2013 which will create the expense but it will be limited to the profits. If there are no profits you will generate a carryover, which is reported to the IRS along with your return. This reporting will allow you to use that deduction in a future year. If your software doesn't track it you should, but definitely put it on the return each year. If you didn't for 2012 they might not allow it, but put it on there this year just to get the clock running.