Question

If Blake elects to use actual office in home (OIH) expenses, what is the amount of his deduction ? Rent (entire year): $14,400 Renter's insurance (entire year): $1,055 Second phone line, exclusively for business: $103 Tax preparation (allocated to business): $350 Utilities (entire year): $2,281 1. $648 2. $743 3. $2,576 4. $2,957

Answer 1

Since Blake has elected to use "Actual OIH" method, the expenses that incurred for entire home would be allocated in proportion to the area of home used for business.

Note: There is no information given on the area of the house and the area used for business. So, we have referred to the same question in our database and used the areas given in the question found in the database. In case, numbers given in this regard in your question is different, simply replace the numbers and recalculate. Alternatively, you can provide the figures in comment box and we would re-calculate it for you.

Area used: 350 Square Feet
Total Area of home = 2,100 Square Feet

Proportion of home used for business = 350/2,100 = 0.1667 or 16.67%

Expense	Amount	Portion to be allocated	Deduction allowed
Rent	14,400	16.67%	2400.00
Renter's insurance	1055	16.67%	175.83
Utilities	2,281	16.67%	380.17
Total		2956.00

Deduction Allowed = Total Expense * Proportion

Hence, option 4 is correct.

Note: The expenses that are exclusively for business or allocated to business is not included in OIH deduction calculation. Hence, expense of second phone line and tax preparation are not included here.