Can I deduct a backyard office "shed"?
June 25, 2020 8:33 AM Subscribe
We are interested in purchasing one of those modular backyard sheds where they ship it flat pack to you and you hire a contractor to install it and lay foundation, add electrical, etc. It would be used solely for an office for me and my husband. Are any of these costs tax deductible?
I work from "home" but that usually means going out to a cafe or co-working space. Those are all closed now. And now my husband is using our home office, so I work at the dining table.
I work from "home" but that usually means going out to a cafe or co-working space. Those are all closed now. And now my husband is using our home office, so I work at the dining table.
You cannot deduct improvements, but you can depreciate improvements. Provided the shed is used entirely for work use, you can deduct the cost of the shed over time as a depreciated home improvement (similar to buying any other asset for your business). The deductions are subject to a depreciation schedule. The details are in Publication 587. If you completed the assembly in July of this year, you'd be able to deduct 1.177% of the cost of the shed on your 2020 taxes. For further years, Publication 946 is applicable.
posted by saeculorum at 8:57 AM on June 25, 2020 [4 favorites]
posted by saeculorum at 8:57 AM on June 25, 2020 [4 favorites]
Actually putting in a shed to use as a dedicated office is way more likely to pass IRS muster than a spare room, as you have the separate door.
posted by The_Vegetables at 9:02 AM on June 25, 2020 [1 favorite]
posted by The_Vegetables at 9:02 AM on June 25, 2020 [1 favorite]
I would think you’d run into problems because the shed isn’t part of the official square footage of the house. Otherwise, people with a large enough property would just throw up giant sheds and write off all their home expenses. You’d probably have to build enough of a “shed” to get the county to assess it as part of the house.
posted by sideshow at 9:07 AM on June 25, 2020
posted by sideshow at 9:07 AM on June 25, 2020
Are you a W2 employee, or are you self-employed? My understanding is that W2 employees in the U.S. can't deduct home office expenses on their federal taxes, and I think depreciation won't work if you don't have any self-employment or business income to report. However I am very much not a tax professional - sounds like you'd probably want to talk with one if you think this may qualify.
Some basic information here.
posted by iminurmefi at 9:16 AM on June 25, 2020 [3 favorites]
Some basic information here.
posted by iminurmefi at 9:16 AM on June 25, 2020 [3 favorites]
iminurmefi's comment is very valid and I should have included that detail. Home office expenses are for self-employed people, not company-employed people.
Otherwise, people with a large enough property would just throw up giant sheds and write off all their home expenses
This isn't the case. A deduction is not a credit - it's a deduction of your income, not your taxes. Say someone's marginal tax rate is (say) 24% and they put up a $5,000 shed. They would be able to depreciate 1.177% of that cost this year ($55.85) and that would decrease their taxes by 24% of the depreciation ($13.04). Of course, they'd be able to continue that depreciation over 39 years... but there's certainly no incentive to build things just for the depreciation.
As a general comment, taking a "write off" is not something people/companies due deliberately to make money - generally it just causes the person/company to lose less money.
posted by saeculorum at 9:17 AM on June 25, 2020 [1 favorite]
Otherwise, people with a large enough property would just throw up giant sheds and write off all their home expenses
This isn't the case. A deduction is not a credit - it's a deduction of your income, not your taxes. Say someone's marginal tax rate is (say) 24% and they put up a $5,000 shed. They would be able to depreciate 1.177% of that cost this year ($55.85) and that would decrease their taxes by 24% of the depreciation ($13.04). Of course, they'd be able to continue that depreciation over 39 years... but there's certainly no incentive to build things just for the depreciation.
As a general comment, taking a "write off" is not something people/companies due deliberately to make money - generally it just causes the person/company to lose less money.
posted by saeculorum at 9:17 AM on June 25, 2020 [1 favorite]
If you are a W-2 employee, you can no longer take the home office deduction. From here: "For tax years 2018 through 2025, tax reform has eliminated the itemized deduction for employee business expenses. Thus, employees may not claim a home office deduction for these years."
If you're self-employed or have a business, you can probably take a deduction in some fashion, but I'd consult a tax accountant to be sure.
posted by bedhead at 9:43 AM on June 25, 2020 [4 favorites]
If you're self-employed or have a business, you can probably take a deduction in some fashion, but I'd consult a tax accountant to be sure.
posted by bedhead at 9:43 AM on June 25, 2020 [4 favorites]
It would be used solely for an office for me and my husband.
The IRS rule is it has to be exclusive use for the business that is taking the deduction. You can't both use and take a deduction if you're both not self employed for the same business. One of you can't take a deduction and allow the other one to use it. If you are W2'ed you can't take it at all. You need to talk to your accountant.
posted by bradbane at 11:21 AM on June 25, 2020
The IRS rule is it has to be exclusive use for the business that is taking the deduction. You can't both use and take a deduction if you're both not self employed for the same business. One of you can't take a deduction and allow the other one to use it. If you are W2'ed you can't take it at all. You need to talk to your accountant.
posted by bradbane at 11:21 AM on June 25, 2020
I'd advise you to be very, very careful about your local laws before you install any office shed. Investigate everything and get permissions in writing. There was an office shed in our backyard for like 30 years, it was there when we moved in, until a couple of years ago when some city inspector showed up and said it had to go. It was all wired up with electricity and we'd fixed it up real nice, but some stuck-up stickybeak decided it had to go, so it went.
I was able to claim some deductions for the shed, but that was years ago and I'm not sure if my experience is relevant.
posted by Ursula Hitler at 3:00 PM on June 25, 2020 [1 favorite]
I was able to claim some deductions for the shed, but that was years ago and I'm not sure if my experience is relevant.
posted by Ursula Hitler at 3:00 PM on June 25, 2020 [1 favorite]
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Also as food for thought here a 10 x10 shed, if it is skidded instead of put on a foundation, doesn't need a permit. It is also relocatable so selling it is straight forward. It might also, depending on where you live, change the tax situation. You can still get utilities in a relocatable shed.
posted by Mitheral at 8:54 AM on June 25, 2020 [1 favorite]