I'm a contractor and have a home office. When can I claim excess mortgage interest and excess real estate? Does TTax do the calculations if they apply to my situation?

[user938310317]

Excess mortgage interest and excess real estate

[DavidD66]

Can you clarify your question please.  What do you mean by "excess" mortgage interest and "excess real estate"?

[user938310317]

Under section : Home Office Expenses (Turbo Tax), they ask if I had "excess real estate taxes" based on my answer to the following questions: 

-If you paid real estate taxes but are not itemizing deductions, do not enter your real estate taxes here. Enter them as excess real estate taxes later.

-If you paid real estate (property) taxes on the entire home, enter this amount here and later go to the Deductions & Credits area and review the property tax information.

I use a small portion of my home as my office, and I am not itemizing deductions. It seems to me that both answers apply to me.

The next page reads:

If you're not able to deduct all of your real estate taxes, you have "excess" real estate taxes. (This is not common.) Do you have excess real estate taxes ?

How do I know if I was able to deduct all my real estate taxes and if I actually have excess real estate taxes?  

Thank you so much and I hope this makes sense.

[M2J]

Did youn get an answer to this? I am trying to understand the meaning of the same questions. I have a home office and pay more than the allowed 10,000 in real estate tax for multiple properties. Do they mean more than 10,000 for just the home office property? And when they ask if I am itemizing deductions do they mean for my home office or my whole personal return? 

[user938310317]

No, I was not able to clarify this.  The way Turbotax poses the question in this section is ambiguous.

I assume that when they ask if I am itemizing deductions they are referring to the whole tax return.

[PatriciaV]

Yes, the question regarding Itemizing your deductions refers to your entire return. In other words, are you claiming the standard deduction or do you have enough other deductions to itemize on Schedule A? TurboTax will tell you which is best for your tax situation when you finish entering your deductions.

Questions regarding "excess" real estate taxes refer to the deduction cap of $10,000 if filing jointly or $5,000 if filing separately. 

Property taxes allocated to your Home Office are considered business expenses and do not count towards the real estate taxes cap. Likewise, property taxes allocated to rental properties are rental expenses. The cap applies to property taxes allocated to your personal residence and second home (places where you live) and are included in the calculation for Itemized Deductions.

To report property taxes under the Home Office Deduction, first determine if you are taking the Standard Deduction or Itemizing on Schedule A.

1. If you are claiming the standard deduction, do not report property taxes until you are asked for excess real estate taxes (even if your total is under the cap).

2. If you are itemizing, and your total real estate taxes for your home(s) are under $10,000 (joint) / $5,000 (separate), enter the total amount under the Home Office deduction. TurboTax will allocate the personal portion to itemized deductions for you.

3. If you are itemizing, and your total real estate taxes for your home(s) are over the cap, answer "yes" for "Do you have excess real estate taxes?" and follow the instructions to enter the total amount. TurboTax will perform the necessary calculations to report the business portion under the Home Office Deduction and the personal portion to Schedule A.

You may wish to review the final allocations on Schedule A, Form 8829 (Home Office), and any related worksheets.

Additional information:

• What's my standard deduction for 2022?
• IRS Instructions for Schedule A Line 5b State and Local Real Estate Taxes
• IRS Instructions for Form 8829 Real Estate Taxes Reported on Line 11

[Bill And01]

Very useful and well explained response... thank you.

I'm in the same boat, that within the itemized deduction section the mortgage interest deduction as well as the property tax/sales tax deduction capped out at the $10,000 limit amount.

So, one follow up question as i populate the Home Office screen - There's no spot to actually answer "Yes", I'm assuming you just enter the amount in the "Excess Mortgage Interest" field... do you enter the same "full amount" we did in the itemized deductions section... or only the "excess amount"?

Thanks in advance,

Bill

[AmyC]

The desktop version lets you just select the full amount of the mortgage. If you are using the online version, enter the full amount of mortgage interest paid and the program will do all the work.

@Bill And01 

[Bill And01]

That must be in the Self Employed version.  I'm using Deluxe and have this screen in the Home Office section:

My whole home mortgage interest is $16,628, which showed at the top originally, then once i put the excess in, it changed to the $10,000 max itemized deduction.  I'm going to assume based on this that they actually want you to insert just the excess.

Thank you.

[AmyC]

You can verify the numbers on your form 8829. Review your forms for accuracy before submitting your return.

See:

About Form 8829, Expenses for Business Use of Your Home

[user938310317]

Thank you PatriciaV for the thorough explanation. 

[davekro]

@PatriciaV

"Questions regarding "excess" real estate taxes refer to the deduction cap of $10,000 if filing jointly or $5,000 if filing separately."

Since Schedule A applies the $10,000 cap (MFJ) to the combined total of lines 5a,b&c, Am I correct to assume when you are using the term 'Real Estate taxes' you are actually referring to the total taxes (lines 5a+b+c)?

5a State & Local Income (or Gen Sales) tax

5b State & local Real Estate taxes

5c State & Local Pers. Prop. taxes

If not, can you explain why lines 5a & 5c are included in what must be under the $10k cap (MFJ)?

Thank you

[Vanessa A]

I do not see the comment you are referring to, however, the cap does apply to 5a+5b+5c.  The total deduction allowed for all state and local taxes combined is capped at $10,000.  The 3 of them combined are referred to as SALT.