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Calculation of Home Office deductions

Brittney is a broker who works full-time for a national brokerage firm. She also maintains
an office in her home for her sole proprietorship, which she uses to provide financial
planning services to clients. Expenses of the business (other than home office expenses)
are $3,200. Brittany's home expenses are as follows:

Real Property taxes $4,000
Interest on Home Mortgage $5,000
Operating Expenses of Home $1,000
Depreciation (Based on 20% business use) $1,500

Brittany's gross income from the consulting activity is $5,500.

a. Compute Brittany's office in the home deduction.
b. How are these items classified?

Solution Preview

The theory of home office deductions is that they cannot by themselves cause a business to show a loss. Home office deductions can eat up any remaining profit in a business after all other deductions, but only down to zero.

a. Using Form 8829, we start ...

Solution Summary

The solution explains the ordering of deductions for the home office allowable expense and explains the limitations and carryover provisions allowable.