Our tax code contains plenty of opportunities to cut your taxes. There are also plenty of places in the tax code that could create a surprising tax bill. Here are some of the more common traps.
If you deduct home office expenses on your tax return, you could end up with a tax bill when you sell your home in the future.
When you sell a home you've been living in for at least 2 of the past 5 years, you may qualify to exclude from your taxable income up to $250,000 of profit from the sale. And that's if you're single! If you are married, you qualify for a whopping $500,000!
But if you have a home office, you may be required to pay taxes on a proportionate share of the gain.
Let's say you have a 100 sq. ft. home office located in a garage, cottage or guest house on your property. Your main house is 2,000 sq. ft., making the size of your office 5% of your house's overall area. When you sell your home, you may have to pay taxes on 5% of the gain.
Even worse, if you claim depreciation on your home office, this could add even more. This added tax hit could happen to either a home office located in a separate structure on your property or in a home office located within your primary home.
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