[Congressional Record Volume 147, Number 73 (Thursday, May 24, 2001)]
[Senate]
[Page S5618]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BOND:
  S. 945. A bill to amend the Internal Revenue Code of 1986 to repeal 
the recognition of capital gain rule for home offices; to the Committee 
on Finance.
  Mr. BOND. Mr. President, in 1997 Congress made an important change in 
the tax code for small businesses by restoring the home-office 
deduction. That change opened the door for millions of Americans to 
operate successful small businesses from their homes. Now the home-
based financial planner or landscape can use an extra bedroom or a 
basement to conduct her business without the cost of commercial office 
space. In many cases, these home offices also allow today's 
entrepreneurs to spend more time with their family by avoiding the 
added time and expense of day-care and commuting.
  With the restoration of the home-office deduction, however, came a 
significant new complexity for home-based businesses, depreciation 
recapture. If a home-based medical transcriber elects to claim the 
home-office deduction, she will deduct the expenses relating to her 
home office, such as a portion of her home-owners insurance, utilities, 
repairs, and maintenance. She is also entitled to depreciate a portion 
of the cost of her house relating to the home office. But there is a 
big catch. When the home-based business owner sells her home, she must 
recapture all of the depreciation deductions and pay income taxes on 
them, even though her house qualifies for the exclusion from tax for 
the sale of a principal residence.
  The specter of depreciation recapture has several significant 
ramifications. First, it requires additional recordkeeping for home-
based business owners, on top of the enormous burdens that the tax code 
already imposes on a small business. Second, when the home-based 
business owner decides to sell his home, he must struggle with the 
complexities of calculating the depreciation recapture or, as is too 
often the case, he must hire a costly tax professional to undertake the 
calculations and prepare the required tax forms.
  Additionally, the depreciation-recapture requirement creates a 
disincentive for home-based business owners to claim the home-office 
deduction in the first place. In fact, I have heard from accountants 
and tax advisors in my home State of Missouri that they frequently 
advise their clients to forego the home-office deduction simply to 
avoid the recordkeeping and complexities associated with recapturing 
the depreciation. That is clearly not what Congress intended when it 
restored the home-office deduction in 1997.
  In light of this problem, I rise today to introduce the ``Home-Office 
Deduction Simplification Act of 2001.'' This bill simply repeals the 
depreciation-recapture requirement and the disincentive for home-based 
businesses to utilize the home-office deduction. At a time when the 
Nation's small businesses are feeling real pain from the current 
economic slow down, this bill will provide real relief, not only when 
they sell their homes, but today by giving them the benefit of the 
home-office deduction that Congress intended.
  It is my pleasure to be working with Congressman Donald Manzullo, 
Chairman of the House Committee on Small Business, to raise this issue 
in both Chambers. I urge my colleagues in the Senate to support this 
legislation and make the home-office deduction as simple and accessible 
as possible. Our home-based businesses across the nation deserve 
nothing less.
  I ask unanimous consent that the text of the bill and a description 
of its provisions be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 945

  [Data not available at time of printing.]

   Home-Office Deduction Simplification Act of 2001--Description of 
                               Provisions

  The bill repeals section 121(d)(6) of the Internal Revenue Code. 
Currently, this provision requires individuals who claim depreciation 
deductions with respect to a home-office to recapture such deductions 
upon the sale of their home. As a result, the amount of the recaptured 
depreciation deductions is subject to income taxation without the 
benefit of the income-tax exclusion for the sale of a principal 
residence or the capital-gains tax rates in cases where the exclusion 
does not apply.
  By repealing the depreciation-recapture requirement, the bill 
eliminates the paperwork and compliance burdens that frequently prevent 
home-based business owners from claiming the home-office deduction. The 
bill will be effective for sales or exchanges of homes occurring after 
December 31, 2000.
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