Question
Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she
Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,940. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses.
Real property taxes | $ 1,770 |
---|---|
Interest on home mortgage | 5,355 |
Operating expenses of home | 885 |
Depreciation | 1,702 |
Also, assume that, not counting the sole proprietorship, Ritas AGI is $63,400. Rita itemizes deductions, and her itemized deduction for non-home business taxes is less than $10,000 by more than the real property taxes allocated to business use of the home.
Assume Ritas consulting business generated $15,850 in gross income.
a. What is Ritas home office deduction for the current year?
b. What would Ritas home office deduction be if her business generated $10,850 of gross income instead of $15,850? (Answer for both the actual expense method and the simplified method.)
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