USA Schedule C depreciation differences from year to year

[Lucinda Hulihan]

Hello, I am an underwriter for a bank and I have a conundrum. I have this customer that has a large difference from his 2013 line 30 (Expenses for business use of home) compared to his 2014 and 2015 tax returns. Also his depreciation has increased dramatically.

Expenses for business use of home:
In 2013 on the info lines within line 30 or the Schedule C that his house is 2000 sq.ft. and that his business uses 600 sq.ft. From the rules I have found on 2015 worksheet it looks as though the maximum that can be used is 300. I'm not sure if that changed at all in the recent years but here is the puzzle I am trying to solve:

He hasn't moved in 10 years, and he has been in business for 27 years. He didn't fill in the info lines for 2014 and 2015.
On his 2013 Schedule C line 30 he had $5,413
On his 2014 and 2015 the same line jumped to $18,000s

Is this even possible??????

Depreciation:

2013 he lists his depreciation as $3,500 and his car and truck expenses are listed at $45,000
2014 he lists his depreciation as $11,500 and his car and truck expenses stay pretty close to the previous year at $49,000
2015 he lists his depreciation as $40,048 and his car and truck expenses also stay pretty close to the prior years at $49,600

He is a construction worker so I understand that other items could be included in this but at the same time, he has been in business for 27 years and it almost makes me feel that he should have all the equipment he needs for his line of work since he has been in business for 27 years and that his depreciation should not fluctuate as much as it has in these recent years.

Any insight on this would be extremely helpful!!!

 

[kirby]

I agree those items need an explanation. You have done a good job identifying what needs to be explained. Step 2 is to contact the borrower and ask for the explanation. Else you can speculate forever

 

[Lucinda Hulihan]

I figured out that he used the simplified allocation method in 2013 and not in 2014 and 2015. But in 2014 and 2015 he said he used 42.5% off his 2000 sq. ft. home solely for his business....really??? He is a construction worker!! I could understand him having a desk and maybe having a little bit of stock supply of materials but not enough to take 850 sq. ft. of his 2000 sq. ft. home!

 

[DTA93433]

The 42.5% does seem rather high; but if he legitimately used this space "regularly and exclusively" in his business, I don't know how you argue against it. Can you ask for proof (pictures) in your case? (I'm presuming this makes up the difference in depreciation you were citing (above). If it doesn't simply ask the client to provide you with either a fixed assets schedule (listing) and/or a depreciation schedule.