Home Office Casualty Loss Conundrum
My question is about Casualty Loss related directly to the Business Use of my home. I own my home and the office is approximately 30% of the space. There was a flood that damaged part of my office. My insurance policy did not cover any of the loss and so reimbursement was zero. Many things needed to be replaced such as paneling, lighting, electrical, carpet, cabinets, etc. I wonder if it is correct to claim that the cost of restoring the office is the amount of the loss? Should I use the cost of the replacing the damage as the FMV before the loss and zero as the value after the loss, or should I use the remaining depreciable basis of the office as the FMV before the loss and subtract the cost of replacement from that value as the value directly after the flood to arrive at FMV after the loss. I have a long list of the replacement costs. These costs do not include costs that were repairs. which I have lsited separately. I had planned to expense both the replacement costs and the repairs as direct home office costs.
In addition, the current FMV of my house is probably 5 times the adjusted basis when I put the office into service. Over the past 10 years the property value of the house has appreciated. Also, the replacement costs were not for duplicate items that were damagaed, since many of those items are no longer available.
I also called the IRS and spoke to a 2 different agents each of whom told me different protocols to apply. The last one told me to fill out Form 4684, Part A. But that is for Personal Property, not Business Property. It seems to me Part B of Form 4684 is the correct place to take the casualty loss for business. Can I show the loss there or was the IRS agent correct? I was intending on carrying the loss from Part B Form 4684 to Form 8829, Column A, line 9 (Casualty Losses), as a direct expense, since the amount is determined by the cost of the replacements and applies only to the office portion of my house. I was also going to fill out a separate Form 4684 for the personal part of my residence that was damaged by the flood and use that on Schedule A.
What’s the best way to go about taking the business portion of my loss?