Question

2- Henrietta is self-employed and would like to know what kind of deduction she could get for her home office. She has gross income from her business of $150,000. Her total home square footage is 2,500. The square footage of her office is 150. Total utilities $600. Total home mortgage interest $10,000. Total real estate taxes $4,000.

1. Explain to Henrietta the options for calculating the home office deduction.
2. Based on the information provided what would be Henrietta’s deduction?
3. What information should you discuss with Henrietta regarding the requirements of taking this deduction?

Answer 1

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simplified option for computing the home office deduction
Highlights of the simplified option:
Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.
Gross income	150000
Home Square footage	2500
Square footage of office	150
Total utilities	600
Home mortgage interest	10000
Total real estate taxes	4000
Percentage of space used for office	6.00%
Deductions
Standard deduction (5$ per sq ft)	$                        750.00
Total utilities(restricted to percentage of office space)	$                          36.00
Home mortgage interest	$                  10,000.00
Total real estate taxes	$                    4,000.00
	$                  14,786.00