ExpertHard1 markMultiple Choice
CPA · Question 54 · Area IV: Individual Taxation
A taxpayer has a home office that is used exclusively and regularly as the principal place of business. The gross income from the business is $10,000. Direct expenses of the business (supplies, etc.) are $6,000. Allocable home expenses (mortgage interest, taxes, utilities, depreciation) total $5,000. What is the home office deduction allowed?
A taxpayer has a home office that is used exclusively and regularly as the principal place of business. The gross income from the business is $10,000. Direct expenses of the business (supplies, etc.) are $6,000. Allocable home expenses (mortgage interest, taxes, utilities, depreciation) total $5,000. What is the home office deduction allowed?
Answer options:
A.
$5,000
B.
$4,000
C.
$0
D.
$11,000
How to approach this question
Home Office Deduction Limit: Cannot exceed business income AFTER direct expenses. Income $10k - Direct $6k = $4k limit. Expenses $5k. Deduction $4k. Carryforward $1k.
Full Answer
B.$4,000✓ Correct
B
The home office deduction is limited to the gross income from the business minus business expenses other than the home office expenses. $10,000 - $6,000 = $4,000 limit. Since allocable expenses are $5,000, the deduction is limited to $4,000. The excess carries forward.
Common mistakes
Deducting the full amount to create a loss.
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