Martin is self employed and he uses a room in his home as his principal place of

Question

Martin is self employed and he uses a room in his home as his principal place of business, He clients there and doesn't use the room for any other purpose. The size of his home office is 600 square feet. The size of his entire home is 3,000 square feet. During the current year, Martin received $10,000 of gross income from his business activities and he reports $7,500 of business expenses interest, $2,000 of property taxes, $2,500 of home operating expenses, and $4,500 of depreciation expense. current year (assume he uses the actual expense method of computing home office expenses)? Indicate the amount and type of expenses he must carry over to next year, if any. unrelated to his home office. For his entire home, he reported $10,000 of mortgage What amount of home office expenses is Martin allowed to deduct in the Home Office Expense Deduction Carryover Expenses Expense Allocation Calculations MacBook Air 's 80 2 4 5

Explanation / Answer

Basis:

The totalarea of house is 3000 sq. feet and out of this, a room of 600 sq. feet is used for meeting with clients regularly. The said room is not used for any other purposes.

so, being upto 20% (exactly 20%, in this case), the deduciton of home office expenses can be claimed. The amount of deduction will be limited to 100% in caseof direct expenses and proportionate, in the ratio of are used for office: total area, for other expenses.These are calculated hereunder

Expenses allowable as deduction:

It appears that there are no direct expenses.

All are indirect expense and qualify for deduction. The amount is computed as follows:

.Mortgage interest $ 10,000

Depreciation $ 4,500

Property Tax $ 2,000

Home operating expenses $ 2,500

TOTAL $ 19,000

Maximum allowable expenses $ 3,800, being 20%of $ 19,000 because area used for office is 20% of total area of home.

Martin has a net income, after business expenses : $ 2,500

Expenses allowed to be deducted $ 2,500 ( deductible expenses can not exceed the net income)

Expenses to be carried over $ 1,400 ( difference of$3,900 and $2,500)

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