8829/SALT error message

[marc1974]

My apologies if this has been asked and answered, but I keep receiving an error message that line 11b on form 8829 is in error because SALT amounts for real estate tax deductions are limited to a combined total of $40,000.  I checked the Form 8829 for both our Schedule Cs, and the proportion of real estate taxes deducted is equal to the percentage of the home office space (33%), and the itemized deduction on Schedule A is 67% of the real estate taxes we paid last year.  Why am I receiving an error message then?  Why would the SALT cap have any impact on a Schedule C deduction?

[LenaH · Accepted solution]

If you have two Schedule C's and both have a home office deduction, you have to split the amount of property tax between the two businesses. You cannot enter the total amount of property tax paid for each home office entry. This would cause the total deduction to be greater than what was actually paid. This is likely why TurboTax is giving you an error. 

As an example, I completed a mock return and took the following steps:

1. For simplicity, I assumed my property taxes were $40,000, Schedule C (1) got a home office allocation of 33%, Schedule C (2) also got a home office allocation of 33%
2. First, I entered my home office deduction for Schedule C (1)
   • I elected to enter my actual expenses
   • For the amount of real estate taxes, I entered $20,000 (half of the $40,000 total).
   • I checked off the box next to Real estate taxes entered here were already entered on another home office.
3. Next, I entered my home office deduction for Schedule C (2)
   • Repeated the same steps as shown above with Schedule C (1)
4. Now, when looking at my return, my Schedule A shows a $26,680 property tax deduction on Line 5b, my Schedule C (1) shows an allocation of $6,660, and my Schedule C (2) shows an allocation of $6,660. These amount total the $40,000 in property tax. Any amount higher would be incorrect as I only paid the $40,000 in this example.

[marc1974]

Thank you for taking the time to walk through that!  Very much appreciated

I think I am still a little confused because we hit the $40K Salt cap, so we lost a portion of our real estate deduction from line 5D,  so the total amount that we were actually able to deduct from our taxes was less than what we paid in property taxes (but I guess that is just because we hit the SALT cap on line 5D, and can't use the excess property tax amount against our Schedule C businesses?)

[LenaH]

That is correct. If you hit the $40,000 limit on Schedule A, you cannot bypass it by re-characterizing personal property taxes as business expenses beyond the allowed home-office percentage. 

@marc1974