Question

Brooke owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home where she meets with clients, prepares bills, and performs other work-related tasks. The home office is 300 square feet and the entire house is 4,500 square feet. Brooke incurred the following home-related expenses during the year. Unless indicated otherwise, assume Brooke uses the actual expense method to compute home office expenses.

Real property taxes	$	3,600
Interest on home mortgage		14,000
Operating expenses of home		5,000
Depreciation		12,000
Repairs to home theater room		1,000

Required:

What amount of each of these expenses is allocated to the home office?

What are the total amounts of tier 1, tier 2, and tier 3 expenses, respectively, allocated to the home office?

If Brooke reported $2,000 of Schedule C net income before the home office expense deduction, what is the amount of her home office expense deduction and what home office expenses, if any, would she carry over to next year?

(For all requirements, Leave no answer blank. Enter zero if applicable. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a)

What amount of each of these expenses is allocated to the home office?

Expense	Allocated to home office
Real property taxes
Interest on home mortgage
Operating expenses of home
Depreciation
Repairs to home theater room
Total expenses

b)

What are the total amounts of tier 1, tier 2, and tier 3 expenses, respectively, allocated to the home office?

Tier 1 expenses
Tier 2 expenses
Tier 3 expenses

c)

If Brooke reported $2,000 of Schedule C net income before the home office expense deduction, what is the amount of her home office expense deduction and what home office expenses, if any, would she carry over to next year?

Home office expense deduction
Home office expense carried over

Answer 1

a)

Expense	Amount($)	Type	Allocated to home office 6.667% of Indirect (300/4500 sq. ft.)
Real Property taxs	3600	Indirect	$240
Interest on home mortgage	14000	Indirect	$933
Operating Expenses of home	5000	Indirect	$333
Depreciation	12000	Indirect	$800
Repairs to home theater room	1000	Unrelated	$0
Total Expenses	35600		$2306

b)

Tier 1 Expenses ($240+$933)	$1173
Tier 2 Expenses	$333
Tier 3 Expenses	$800

c)

Home office expense deduction ($2000-$1173-$333)	$494
Home office expense carried over ($2306 - $2000)	$306

answered by: anonymous