Question

Sabin is an artist and maintains an office (his studio) in his home. His office occupies 8% of the total floor space of his residence. Gross income from his business is $24,000. Expenses of the business (other than home office expenses) are $5,000. Sabin incurs the following home office expenses:
Real property taxes on residence: $2,400 Interest expense on residence: $4,000 Operating expenses of residence: $2,200 Depreciation on residence (based on 8% business use): $450.
A) Assuming Sabin uses the "regular method" to compute the office in the home deduction, his deduction is ?
B) Assuming Sabin uses the "simplifed method" to computer the office in the home deduction, his deduction is?

Answer 1

Answer:

Sabin

Home Office Deduction:

A) Assuming Sabin uses the "regular method" to compute the office in the home deduction, his deduction is:

= $962.

B) Assuming Sabin uses the "simplified method" to computer the office in the home deduction, his deduction is:

= $1,500.

Explanation:

a) Data and Calculations:

Gross business income $24,000

Home office space = 8%

Exclusive business expenses = $5,000

Qualified home office expenses:

Real property taxes                 $2,400

Mortgage interest                      4,000

Depreciation                              5,625 ($450/8%)

Total home office expenses $12,025

Deductions (8%)                           962

b) Depending on whether Sabin chooses the simplified version or the regular method, his business expenses of $5,000 are deductible in addition to the above, from his business gross income of $24,000.