Question

Nellie is a​ self-employed consultant who uses 25 % of her residence as an office. The office is used exclusively for business and is frequented by customers on a regular basis. Nellie also uses her den as an office ​(5 of the total floor space of her​ home) to prepare bills and keep records.​ However, the den is also used by her children as a TV room. In 2017​, Nellie's net income from the consulting business​ (other than her home office​ expenses) amounts to $60,000. She also incurs $1,000of expenses directly related to the office​ (e.g., painting of the​ office, window​ blinds). Nellie incurs the following expenses in 2017 related to her​ residence:

Real estate taxes	$3,400
Mortgage interest	8,000
Insurance	1,500
Depreciation	6,500
Repairs and utilities	1,800
	Total $21,200

a. Which of the expenditures​ (if any) are deductible for 2017​?
Are they for AGI or from AGI​ deductions? How would your answers change if the tax year were 2018 rather than 2017​?

b. Would your answer to Part a change if Nellie's net income from consulting were only $5,650 for the​ year? What is the amount of the​ office-in-home deduction and the amount of the carryover​ (if any) of the unused​ deductions?

Answer 1

a) Deductable expenditures which are Deductable for 2017 :

= $ 1000 + 25/100($6,500 + $1800)

= $ 1000 + $ 2,075

= $ 3,075

They are for AGI , AGI is achieved by subtracting all deductions from gross income.

Yes answer would be different if tax year would be 2018 because in 2018 there could be some additional expenses which can b claimed as deductable expense.

b)

Answer would be same as in part a because in part a only Deductable expenditure has been asked not the final AGI amount.

Office in home deduction is $1,000

There is no Unused deductions.