Warning! TurboTax 2019 might incorrectly calculate the Home Office deduction when you move

[Dmitry1]

Turbotax 2019 incorrectly calculates the Home Office deduction when you move. This happens because it doesn't allow to specify 100% for both home offices on the "Business conducted in home office" screen. It requires to prorate the percentage and this leads to the incorrect calculation of your taxes. Look at this example:

You lived in home 1 for 3 months and then moved to home 2 for the remaining 9 months.

Home Office 1: 3 months

Expenses: $300

Business Conducted: 25%

TurboTax Deducts: $75

Home Office 2: 9 months

Expenses: $900

Business Conducted: 75%

TurboTax Deducts: $675

So, TurboTax allows you to deduct only $750 total for your home offices. But you spent $1200 and you always used one home office at a time with the 100% business conduct there.

Because you never had both offices at the same moment of time and just moved from one home office to another, the correct calculation must be the following:

Home Office 1: 3 months

Expenses: $300

Business Conducted: 100%

TurboTax Deducts: $300

Home Office 2: 9 months

Expenses: $900

Business Conducted: 100%

TurboTax Deducts: $900

Unfortunately, TurboTax doesn't accept this input and shows the error that the total business conduct can't exceed 100%. Actually, it doesn't exceed 100%. It was 100% for 3 months and then 100% again for the remaining 9 months. But TurboTax adds 100% to 100% and wrongly gets 200%.

The following home office usage is 100% - not 200% as TurboTax thinks:

January: Home Office 1 - 100%

February: Home Office 1 - 100%

March: Home Office 1 - 100%

April: Home Office 2 - 100%

May: Home Office 2 - 100%

June: Home Office 2 - 100%

July: Home Office 2 - 100%

August: Home Office 2 - 100%

September: Home Office 2 - 100%

October: Home Office 2 - 100%

November: Home Office 2 - 100%

December: Home Office 2 - 100%

The calculated business conduct by TurboTax is 200% (Home Office 1's 100% plus Home Office 2's 100%)

The correct business conduct is 100%

Please fix this error in the app and send letters to your customers suggesting them to file amended tax returns.

[AmeliesUncle]

It is asking what percentage of your annual income was earned in this home office.

And yes, the limits for a Home Office can get weird because of a weird entry in the law.  But unfortunately, the program does do that correctly with what the law says.

[Dmitry1]

It's not just this. I saw the "Federal Tax Due" increased after I changed 100% to 25%. So, it did exactly what I described - it reduced the amount of the home office deduction by 4 times. But it shouldn't do that. Because I used that office for 100% business conduct for 3 months - not for 25%.

[AmeliesUncle]

Again, it is asking how much of your annual income was earned in that Home Office.  And I suspect what you are seeing is due to that weird tax rule (I strongly suspect that Congress MEANT it to mean something else, but they miswrote it so it sometimes sets a weird limitation on the Home Office).

[Dmitry1]

A similar issue happens on the "Let's split your business expenses between your two home offices" screen. Those expenses were never incurred at the same moment of time, so there is nothing to split. I had expenses for 3 months at one home office and for the remaining 9 months at another home office. Both were at 100%. But TurboTax doesn't allow to enter 100% for both home offices again.

[AmeliesUncle]

The same thing as I said above applies.  For the expenses on your Schedule C (not your Home Office), what percentage of your annual Schedule C expenses were incurred during the use of each of the Home Offices.

[Dmitry1]

I agree about the splitting the business expenses (the additional comment), but not about the reducing the home office expenses (the original topic). But it looks like after splitting the business expenses the home office expenses were deducted properly. I'm not 100% sure though.

[lisadparker]

It is NOT askig how much of your income is derived from each home office. It is asking how much administrative time you spent in your home office. In this way, the amount of your deduction is determined. it is nt based on your income however, it is based on the time spent. At least thatis how I read the question.