Home Office Depreciation Life: What You Need to Know

Setting up a home office can provide tax benefits, including depreciation of certain costs over time. Depreciation allows you to recover part of your investment in business assets by deducting their value gradually. This lowers taxable income and makes home office expenses more manageable.

Understanding depreciation is essential to avoid IRS issues or missed deductions. Properly categorizing assets, applying the right depreciation schedules, and accounting for changes in use are key factors.

Identifying Depreciable Components

Not all aspects of a home office qualify for depreciation. The IRS allows depreciation only on assets with a useful life beyond one year that are used for business. These typically fall into three categories: structural elements, equipment, and special features.

Structural Elements

Permanent features of your home office, such as walls, flooring, and built-in fixtures, may be depreciated as part of the property. Residential real estate has a recovery period of 27.5 years under the Modified Accelerated Cost Recovery System (MACRS), meaning depreciation is spread over that time. If your home office occupies 10% of your total living space, you may deduct 10% of the annual depreciation on the building.

Improvements specific to the office, such as installing new windows or upgrading insulation, can be depreciated separately based on their own recovery periods. These typically follow the same 27.5-year schedule unless classified differently under IRS rules.

Equipment

Office equipment, including computers, printers, and furniture, follows different depreciation rules. Most electronics have a five-year recovery period under MACRS, while furniture like desks and chairs typically depreciate over seven years.

The IRS allows accelerated depreciation methods, such as Section 179 expensing, which permits an immediate deduction of qualifying equipment purchases up to $1,220,000 for 2024. However, this deduction cannot exceed total taxable income for the year. If Section 179 is not used, regular depreciation spreads deductions over the asset’s useful life. Keeping detailed records of purchase dates and costs is necessary for accurate claims.

Special Features

Modifications made for business activities—such as dedicated lighting, built-in shelving, or soundproofing—may qualify for depreciation based on their classification. A custom-built workstation may be depreciated over seven years, while a ventilation system for a home-based laboratory could have a 15-year recovery period.

Features integral to the structure, such as additional electrical wiring for office equipment, may need to be depreciated along with the building. Since classifications vary, consulting IRS Publication 946 or a tax professional can help determine the appropriate treatment.

Depreciation Schedules

The IRS assigns different recovery periods based on an asset’s useful life, determining how deductions are spread over time. Home office assets are categorized under MACRS, which outlines specific schedules for calculating annual deductions.

For assets that do not qualify for immediate expensing under Section 179, the General Depreciation System (GDS) is most commonly used. Under GDS, most office equipment follows the 200% declining balance method before switching to straight-line depreciation, allowing for larger deductions in earlier years. The Alternative Depreciation System (ADS), which applies a straight-line method over longer recovery periods, is required in certain cases, such as when business use falls below 50%.

Depreciation schedules also account for the timing of asset purchases through conventions like the half-year or mid-quarter rules. The half-year convention assumes assets are placed in service at the midpoint of the year, spreading deductions evenly. If more than 40% of total asset purchases occur in the last quarter, the mid-quarter convention applies, adjusting first-year depreciation to prevent front-loading deductions. These conventions affect the timing of tax savings and should be considered when planning purchases.

Adjustments for Partial Use

When a home office serves both business and personal purposes, depreciation deductions must reflect the percentage of time and space used for work. The IRS allows deductions only for the portion dedicated exclusively to business.

One method to determine business use is by measuring the square footage of the office relative to the total home size. If a workspace occupies 150 square feet in a 1,500-square-foot home, the business-use percentage is 10%. If a room is used for both business and personal activities, time-based apportionment may be necessary. For example, if a space is used for business 30 hours per week out of a potential 168, the business-use percentage would be approximately 18%. These calculations must be documented in case of IRS scrutiny.

Shared-use assets, such as internet service or office equipment used for both personal and business purposes, require further adjustments. The IRS allows deductions for the portion of expenses directly related to business, but mixed-use items must be allocated accordingly. A computer used 60% for work and 40% for personal tasks would only qualify for depreciation on the business portion. Keeping detailed records—such as usage logs or separate accounts for business expenses—can support these claims and prevent disputes.

Recapture on Change of Use

When an asset previously used for business is converted to personal use or sold, any depreciation claimed may be subject to recapture, requiring a portion of prior deductions to be added back as taxable income.

For personal property, such as office equipment or furniture, Section 1245 recapture applies if the asset is sold for more than its adjusted basis, which is the original cost minus accumulated depreciation. The excess depreciation claimed over the years is then taxed as ordinary income rather than at lower capital gains rates. If the asset is converted to personal use rather than sold, depreciation stops, but no immediate tax liability arises unless it is later sold at a gain.

Real property, including structural improvements to a home office, falls under Section 1250. Unlike personal property, only depreciation in excess of straight-line amounts is subject to recapture at ordinary rates, though most home office assets use straight-line depreciation under MACRS. If the property is later sold, unrecaptured Section 1250 gains are taxed at a maximum rate of 25%, which is higher than standard long-term capital gains but lower than ordinary income rates.

Filing Implications

Claiming depreciation for a home office requires accurate reporting on tax returns. The primary form used is Form 8829 (Expenses for Business Use of Your Home), which calculates the allowable deduction based on business-use percentage and includes depreciation calculations. The total deduction from Form 8829 is then transferred to Schedule C (Profit or Loss from Business) for sole proprietors or Form 2106 (Employee Business Expenses) for qualifying employees, though employee deductions are generally disallowed under current tax law unless reimbursed by an employer.

For depreciable assets like office furniture and equipment, Form 4562 (Depreciation and Amortization) is required to report depreciation methods, recovery periods, and any Section 179 expensing elections. This form also tracks cumulative depreciation, which is necessary for calculating adjusted basis when assets are sold or converted to personal use. Maintaining detailed records—including purchase receipts, depreciation schedules, and business-use calculations—helps substantiate deductions in case of an IRS audit.