Question on home office deduction

jkuckie — Wed, 05 Jun 2019 18:37:36 GMT

we have a business under a schedule c and it has a net profit showing, however when I try to take a home office deduction it says I can't take a deduction because the business did not have a profit. Not sure why that is the error I'm receiving when there was a profit on the business showing. The profit is also enough that is should not be offset to a loss for the business.

The deductible home office expense is limited by the inco...

AnnetteB — Wed, 05 Jun 2019 18:37:37 GMT

The deductible home office expense is limited by the income for the business that is attributed to the home office and by the other expenses for the business. If the home office expenses are limited and not allowed to be taken on the current year’s return, then they are carried forward to the next year as long as the actual home office expenses were being used and not the simplified method based solely on the square feet of the office.

There are some examples below that will illustrate this limitation a little better.

Income Earned from Home Office

The IRS limits the total of certain kinds of home office expenses - the ones you would not be able to deduct anywhere else on your tax return, such as your utilities and repairs - to the income earned from activities in your home office. Although these expenses cannot themselves create a loss on your business, you can carry over any unused portion to next year's home office deduction.

Here's how it works. Let's say
- Your business income before any expenses was $10,000
- All business expenses that would not limit your home office deduction were $4,000, and
- The home office expenses were $3,000

1). If 90% of your income came from business conducted in your home office, then you can deduct all of your home office expenses:
- $10,000 X 90% of income from the home office = $9,000 from business use of the home
- $9,000 - $4,000 other expenses = $5,000 available for home office expenses
- $5,000 is greater than $3,000 home office expenses, so you can deduct all of them.

2). However, if 60% of your income came from business conducted in your home office, then your home office expenses will be limited:
- $10,000 X 60% of income from the home office = $6,000 from business use of the home
- $6,000 - $4,000 other expenses = $2,000 available for home office expenses
- $2,000 is less than $3,000 home office expenses, so you can deduct $2,000 of them this year, and carry the remaining $1,000 to next year.

3). In addition, if 30% of your income came from business conducted in your home office, then you would not be able to deduct any of them this year:
- $10,000 X 30% of income from the home office = $3,000 from business use of the home
- $3,000 - $4,000 other expenses = $0 available for home office expenses (this will never be less than zero)
- You cannot deduct any home office expenses this year, but you can carry the entire $3,000 to next year.

topic Question on home office deduction in Deductions & credits

Question on home office deduction

The deductible home office expense is limited by the inco...