Friday, December 29, 2006









HOME OFFICE EXPENSE FORM 8829:
This is a line-by-line example of how to take the home office deduction;
For purposes of this example, the business is NOT a daycare facility.
In order to take it, you must use the space regularly and exclusively for your business.
You cannot create or increase a business loss by home office expense, but
You can carry any such unused home office expense to next year.
You will first need to complete Schedule C thru Line 29

See also my previous blog about home-related deductions http://wwwtaxman.blogspot.com/2006/12/home-related-tax-deductions-and-credits.html
PART I PART OF HOME USED FOR BUSINESS:
LINE #
1---…--Area of office---------------------400 sq ft
2----…-Total area of home……………4000 sq ft
3………Line 1 divided by line 2………..10.00%
Skip line s 4-6
7Same as line 3………………………10.00%
PART II FIGURE YOUR ALLOWABLE DEDUCTION:
NOTE: There are no direct expenses in this example, so use column B
LINE #
8--- Income, Line 29 Schedule C………….$100,000
9.-- Casualty losses………………………….-0-
10- Mortgage Int on Home…………………10000
11 Real Estate Tax on home ……………….7000
12 Total (line 9+10+11)……………………17000
13. Line 12 X line 7 (17000 X 10%)………..1700
14 Line 13 (nothing in col A)……………….1700
15 Line 9 – Line 13 (100000 – 1700)………98300
16 Excess Int (none)
17 Insurance…………………………………2800
18 Rent (none)
19 Repairs……………………………………2200
20 Utilities………………..…………………5000
21 Other Expense (none)
22 Total lines 16 thru line 21………………10000
23 Line 22 X Line 7 (10000 X 10%)………..1000
24 Carryover (unallowed last year)………….-0-
25 Line 22, Col a + Col b………………..…1000
26 Smaller of line 15 or 25 ($98300 vs 1000) 1000
27 Line 15-Line 26 (98300 –1000) 97300
DEPRECIATION:
You need to calculate Depreciation in Part III before entering line 29
LINE #
29 ---------------Depreciation………….897
31 Line 28+29+30)…………………………...897
32 …………………………………………….897
33 Lines 14+26+32 (1700+1000+897)………3597
35Allowable Expense….…………………….3597
PART III DEPRECIATION:
36 Cost or Basis of Home…………………400,000
37 Value of Land……………………………50,000
38 Basis of Building alone…………………350,000
39 Business Basis Line 7 X Line 38 35000
40 Depreciation Percentage…………………..2.564% (39 year life is normally applicable)
41 Depr Allowable…………………………….897 (to line 29)
OTHER SCHEDULES:

SCHEDULE C LINE 29 (Same as line8) …..100,000 Profit
Line 30 Sch C from line 35 above……......………..3597
Line 31 Net Profit……………………………...........96403


SCHEDULE A ITEMIZED DEDUCTIONS (reduce for office portion):
Line 6 Real Estate tax (7000-700 for office)………6700
Line 10 Home mortgage Int (10,000-1000)………9000

Link to IRS forms and publications:
http://www.irs.gov/formspubs/index.html
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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.




2 comments:

Jim Howard said...

I just wanted to say thanks for your blog.

I'm an EA and own a retail tax prep franchise business. I've been suggesting to my employees that do as I do and follow your blog.

Each entry so far has been helpful, please keep up the good work.

taxxcpa said...

Thanks for your comment. All comments and suggestions are helpful in improving this blog.