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Two Schedule C businesses using same home office

My wife has a dedicated home office from which she conducts portions of two Schedule C businesses.  95% of all activity for one business, and 50% of all activity for the other.  Two questions regarding the input screen where expenses for the ENTIRE HOME are captured:

1) The mortgage interest total here is substantially lower than the actual total mortgage interest paid on the home - even after the adjustment for excess interest that's not deductible because it's from a HELOC which has a partial balance not associated with home improvements.  The correct total amount of mortgage interest (after non-deductible amount) is shown in the main Federal Deductions screen, however.  Why is this?

2) Instructions say to "split" the home office deductions across both Schedule C businesses.  Does this mean that I should split all of the individual expense items (including data from Form 1098)?  For example, if total homeowner insurance was $1,000 for the year, should I enter $500 in the home office expense section for each Schedule C?

5 Replies
MaryK4
Expert Alumni

Two Schedule C businesses using same home office

The mortgage interest deduction is the amount of the total prorated to the square footage percentage used for the home office. It should not be the total mortgage interest paid.  The amount you claim on Schedule A as an itemized deduction (if you itemize) is reduce by the amount deducted on the Schedule C.

 

When splitting the Home Office Deduction between the two home office schedules, in your example, you must use a percentage of the total expenses that apply to the home office space, THEN divide based on time used for each business.  

 

Let us know if you have any other questions!

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Two Schedule C businesses using same home office

Thanks for the quick reply!

Where in the Deductions & Credits section do I adjust the total to reflect the mortgage interest associated with the home office (your note regarding making sure Schedule A reflects mortgage interest less that deducted in the Schedule C)?  The only input fields in Deductions & Credits ask for the actual data from the Forms 1098.  Am I actually modifying the data in the 1098 Box 1 input fields to reflect an amount not shown on the actual 1098's?

 

Apportioning expenses such as utilities, insurance, etc. based on the percentage of time each Schedule C uses the office makes sense, thanks.  Do I apply those percentages to EVERY editable number on the "Tell us about your home expenses" screen?  Excess Mortgage Interest, Property Taxes, etc.?  Or is TurboTax calculating some of this in the background?  If not, it would be an awesome improvement if TurboTax could simply ask what percentage of home office expenses (for the same office) apply to each Schedule C, and then calculate everything based on the data entered for the whole house (taxes, interest, insurance, etc.)...

 

Other follow-ups:

- When TurboTax asks for expenses associated with the whole house in the home office Schedule C section, my assumption is that it's taking that data and doing the prorating for the square footage of the home office vs. the whole house, yes?  Otherwise why would there be a separate screen asking for such expenses associated with only the home office?  How would there be a separate real estate tax bill associated with a specific room in a house?

 

- Regarding the mortgage interest deduction amount(s), here are my approximate numbers:  total mortgage interest paid was $11,000.  Non-deductible amount of that on a HELOC was $4,000.  So deductible amount for the entire house should be $7,000 right?  This appears to be captured correctly in the Deductions & Credits section.  However, in the home office expense sections of the Schedule C businesses, the total mortgage interest is shown as roughly $2,500 at the top of the column as an un-editable number.  That's well below the amount for the whole house, and at the same time well above the portion of the $7,000 that should apply to the home office (based on square footage percentage).  Why is this?

 

- On the same Schedule C screen (the one where I enter expenses for the whole house), it states, "If you paid real estate taxes on the entire home, enter this amount here and later go to the Deductions & Credits area and review the property tax information."  Review it for what? 

- And am I entering the total property taxes paid in this box for both Schedule C businesses?  Or do I prorate the total property taxes paid on the whole house based on the percentage use of the home office for each Schedule C?

 

- On the same screen ("Tell us about your home expenses"):  there's a check box with the description, "Real estate taxes entered here were already entered on another home office."  Given my situation (2 businesses sharing 1 home office), should this box be checked in both Schedule C's?  One and not the other?  Or neither (since there is only one office)?

 

Thanks for reading through all of these questions!

 

MaryK4
Expert Alumni

Two Schedule C businesses using same home office

Be sure to Look for the screens below.  If you use the Guide me-TurboTax will divide out the correct amounts for the Schedule A, Home Office 1 and Home Office 2.  You will have to enter the full amounts you paid during the time you used the space for either office. Do the same on the other office.

 

 

 

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Two Schedule C businesses using same home office

Thank you for the continued follow-up.  Please recall that there is only one home office, shared by two Schedule C businesses.  I am using Guide Me, and I think I am down to two questions:

 

1) The "Summary of Home Office Expenses" screens at the end of the home office expense input sections shows different totals for Mortgage Interest in the "Entire Home" column between the two Schedule C businesses, even though I entered the same Form 1098 data for both Schedule C's.  Why would this be?  

 

2) On the screen that follows ("Enter Expenses Not Deducted in a Prior Year"), for one Schedule C, TurboTax carried forward the data from my 2018 Form 8829 lines 42 & 43.  However for the other it did not.  For the Schedule C that did not have its data carried forward, there is a number in the 2018 Form 8829 line 42.  Turbo Tax Deluxe 2019 describes line 42 as "Operating Expenses Not Allowed Last Year."  However the actual 2018 Form 8829 describes line 42 as, "Depreciation Allowable."  I suspect the descriptions of the fields in Turbo Tax 2019 are intended to reference lines 43 & 44 of the prior year Form 8829.  Can you confirm?

MaryK4
Expert Alumni

Two Schedule C businesses using same home office

The Home Office Deduction is limited to the net business income, so if one business had less income it would not be able to utilize the full deduction- hence the carryover.

 

Also, depending on the percentage used, this may affect the amounts you are seeing.

@chs86

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