Schedule C for wife, "Tell us about home expenses"

[eaglei22]

My wife did some side stuff selling Monat products. Kind of like a Mary Kay.. She got a 1099-NEC and I am trying to fill this out as if my wife actually had a real business..  I am confused on some of these questions.  We listed her office at the home to get some additional deductions. 

Background: When I purchased the house I wasn't married to my wife yet (but we lived together), and only my name was on the title and mortgage. However I refinanced last Summer, and added my wife (we got married since) to the title, but only my name is on the mortgage as the borrower. We live in Illinois if that matters as far as ownership rights without being married. 

So because its my wife and she started the, "business" / sales side gig in April 2021, she wasn't on the title at that point (I refinanced in August). Would I check the box for, "'wife name' owned the home?"  Next, if the box is checked it allows for mortgage interest deduction. Since we refinanced, will the software deduct the interest from the two lenders listed? Only my name is on the first and refinanced mortgages, does that matter as I am her husband for her to claim the interest paid?

Finally the, "Tell us about home expenses" part..  My wife is now a stay at home mom, and doesn't have any other source of income other than this 1099-NEC.  (We're filing our taxes as married and jointly btw) I pay all the bills of course, so can she still claim Real Estate Taxes, insurance, applicable utilities etc. ?  Only my name is on the 2020 property tax bill, all utility bills, and home owner's insurance.  Also, I already listed property taxes within the software for general deductions and credit tax (outside of the schedule c), would I list the same amount of property taxes paid under the business home expenses => Real Estate taxes too?  Do I list the utilities summed up for the year? Or for the months my wife was active for 15 days or more in the month (the software does ask how many months she as active for 15 days or more, and I put 3). 

The only thing really in my wife's name to deduct was the laptop she purchased. 

In this scenario would I be better off taking the simplified deduction?   Sorry it's so long winded.. but I am completely confused on all of this, as I have never done a schedule C. Thanks!

[AliciaP1 · Accepted solution]

The best thing to do would be to elect to use the simple method of calculating home office expense in this situation.  It will alleviate the issue of your wife not being on the mortgage as well as determining percentages of utilities and other expenses. To do this in TurboTax Online please follow these steps:

1. Within your tax return search Home Office Deduction using the magnifying glass at the top of the page
2. Click Jump to home office deduction
3. Click Review on the 2021 Self-Employed Work Summary page
4. Click Start or Edit whichever shows next to Home Office
5. Click through the screens answering the questions about using the home office if they are prompted
6. Enter the start date of the business - if it was in business in 2020 or earlier enter that date
7. Click through the questions including entering the square footage of the office space and the square footage of the entire living space of the home
8. On the Simplified Home Office Deduction page click Yes, I want to use the simplified deduction and continue with the remaining questions

For additional categories of deductible self-employed expenses see What self-employed expenses can I deduct?

[eaglei22]

Thanks for the help!  Taking a look since our interst and property taxes are high, we'd be losing a couple hundred dollars going the simple method. 

So since my wife was put on the deed in August 2021 but not the mortgage, and only my name is on the bills, can she still claim any of these (interest, property taxes for 2020, utilities, home owners insurance, etc..) for her business if we decided to go that route?

[GeorgeM777]

To add to the response from @AliciaP1, your situation is somewhat unclear given that your spouse does not appear to be a joint owner of the property for the relevant time period.   The home office deduction examples provided by the IRS indicate that the person claiming the home office deduction owns the home where their home office is located.   Whether you can avoid the lack of ownership issue if the funds used to pay the mortgage, property taxes, utilities, etc. came from a joint bank account with your spouse, is an issue beyond the scope of the advice we can provide.  Whether a joint back account will suffice under these circumstances should be discussed with your personal tax advisor or an attorney.

Additionally, you mentioned that your mortgage interest and property taxes are high.  Given these facts, keep in mind that you will not be able to claim the home office deduction if such deduction creates a loss.     

[eaglei22]

Okay, well how about this. The tax software asks how many months did my wife use the office at least 15 days of the month. I put 3 months...  later in the software it asks about mortgage interest, property tax, and utilities... titled: "Tell us about her homes expenses."  and specifically, "We're looking for total expenses for the home here, not the home office."

It carries in the interest rate initially reported from my 1098's, and asks about the property tax and other home expenses. Do I put only the expenses calculated for the three months, or for the entire year?

My confusion is, the software doesn't specify at this point if you put in total expenses for the year, and then if it will obtain or not the correct amount using the 3 months I entered previously...

Also, to make note.. the software asks if any of this applies for 2021,  "my wife owned the home."  I selected yes.. even though my wife wasn't added to the title until the refinance in August.. so if this is an issue (being partial year) it would be helpful if the software was more detailed to better help in a situation like this. 

Thank you.

[ThomasM125 · Accepted solution]

You would enter the expenses for the entire year. The software will allocate them properly based on the questions in the program.

You were correct in stating that your wife owned the home. That is just to determine if there is rent expense to be allocated, as opposed to mortgage interest.

[eaglei22]

Thank you! That clears up that frustration. The only problem I noticed is since I refinanced there are two lenders, and for some reason TurboTax is only carrying in the interest from original lender and not the one new one, even though both lenders showed in the box.