Question

Nancy is employed by a large corporation as a sales representative. She is paid a salary of $70,000 during 2020. She is required to have a home office and uses the 375 square foot den in her 1,500 square foot house exclusively for this purpose.

Total costs for 2020 were as follows:

• Mortgage payments (40% principal, 60% interest): $24,000
• Home owner's insurance: $900
• Utilities: $1,500
• Roof repair: $800
• Property tax: $5,000

Currently, Nancy’s compensation does not include any commissions. As such, she is unable to deduct some of the above costs for tax purposes. If instead, her compensation of $70,000 was in the form of commissions (ie. she received $70,000 in commission income), What would be the amount of additional deductions that Nancy would have available for tax purposes?

Answer 1

If Nancy was paid a commission then it would mean that she has used the office for her official use as well. In this case she would be able to deduct 375/1500 of expenses related to her home. This is in accordance with IRS section 509.

To arrive at the answer you will need to add all expenses (Excluding principal and Property tax) and arrive at the number total number

14,400

900

1500

800

Total of $17600. This needs to be divided by 375/1500 (Since only 375 sq feet is used for business) arriving at $4400.