Question

Jayda, who is self-employed, maintains an office in her home that comprises 28% (330 square feet) of total floor space. Gross income for her business is $43,400, and her residence expenses are as follows:

Real property taxes $4,476
Interest on mortgage 7,460
Operating expenses 3,730
Depreciation (based on 28% business use) 6,395
If required, round your final answer to the nearest dollar.
a. What is Jayda's office in the home deduction based on the regular method?
b. What is Jayda's office in the home deduction based on the simplified method?

Answer 1

Jayda's office in the home deduction based on the regular method is $10,781, calculated by allocating the home expenses to the business space. Using the simplified method, the deduction is $1,500, from $5 per square foot for up to 300 square feet. The regular method provides a higher deduction in this case.

Step-by-step explanation:

To calculate Jayda's office in the home deduction based on the regular method, you need to proportionally allocate the expenses of the home to the business use. The deductible expenses include a prorated share of real property taxes, interest on mortgage, operating expenses, and depreciation. The calculation would be as follows:

• Real property taxes: $4,476 x 28% = $1,253
• Interest on mortgage: $7,460 x 28% = $2,089
• Operating expenses: $3,730 x 28% = $1,044
• Depreciation: Already based on 28% business use = $6,395

The total office in the home deduction using the regular method would be $1,253 + $2,089 + $1,044 + $6,395 = $10,781.

For the simplified method, the IRS allows a standard deduction of $5 per square foot of the home used for business, up to a maximum of 300 square feet. Since Jayda's office is 330 square feet, she's limited to 300 square feet. The calculation is straightforward:

Simplified deduction = 300 square feet x $5/square foot = $1,500.

Jayda would then choose the method that provides the higher deduction for her taxes, which in this case appears to be the regular method.

Answer 2

a. To calculate Jayda's office in the home deduction based on the regular method, add up her total allowable expenses for her residence and multiply by the percentage of total floor space used for the office. b. To calculate the office in the home deduction based on the simplified method, multiply the total square footage of the home office by a prescribed rate.

Step-by-step explanation:

a. To calculate Jayda's office in the home deduction based on the regular method, we need to calculate the total allowable expenses for her residence. The total allowable expenses include real property taxes, interest on mortgage, operating expenses, and depreciation. In this case, the total allowable expenses would be:

Real property taxes: $4,476

Interest on mortgage: $7,460

Operating expenses: $3,730

Depreciation (based on 28% business use): $6,395

The total allowable expenses would be $4,476 + $7,460 + $3,730 + $6,395 = $22,061.20.

The office in the home deduction is calculated by multiplying the total allowable expenses by the percentage of total floor space used for the office. In this case, the office in the home deduction would be $22,061.20 x 28% = $6,175.90.

b. To calculate Jayda's office in the home deduction based on the simplified method, we need to multiply the total square footage of the home office by a prescribed rate. In this case, the total square footage of the home office is 330 square feet and the prescribed rate is $5.

The office in the home deduction based on the simplified method would be 330 x $5 = $1,650.