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Can't seem to get answer to how deductions are handled for home business when the home was purchased for cash.; thus no mortgage interest or rent. Business occupies 34% of 1628 sq foot home.

Accountant's Assistant: The Expert will know how to help. Please tell me more, so we can help you best.

Home purchase price was $89,000 and had to withdraw money from Ira.

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No that would be my question

Submitted: 9 months ago.Category: Tax
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Answered in 14 minutes by:
9/20/2017
Tax Professional: Lev, Tax Advisor replied 9 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,984
Experience: Taxes, Immigration, Labor Relations
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First of all - you need to identify which part of the home is used fro business.
You may only deduct expenses related to THAT part.
In nmost situations that is based on sq footage of business area.

For instance - if you are using 400 sq foot for business - that is 25% of your total home - and you will prorate all related expenses as 25% business use.

That includes utilities, insurance, real estate taxes, mortgage interest, maintenance costs, etc.

The cost of your house will be depreciated - but not the full cost - but only the business portion.

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Tax Professional: Lev, Tax Advisor replied 9 months ago

.

Regular Method - You compute the business use of home deduction by dividing expenses of operating the home between personal and business use. You may deduct direct business expenses in full, and may allocate the indirect total expenses of the home to the percentage of the home floor space used for business.

Simplified Option - While taxpayers can still figure the deduction using the regular method, many taxpayers may find the optional safe harbor method less burdensome. You are allowed to use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to compute the business use of home deduction. Under this safe harbor method, depreciation is treated as zero and the taxpayer claims the deduction directly on Form 1040, Schedule C.

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