Question

Paul is self employed and has a qualifying home office which is 20% of his total home. His income far exceeds his expenses so he has no net income limitations to consider. This year he paid $3500.00 to redecorate the business part of the residence. How would Paul calculate his home office deduction.

Answer 1

Note that home office must be exclusively and regularly used as the principal place of business. The deductibility of home office expense depends on whether the expense is direct, indirect or unrelated. Direct expenses i.e. expense which are only for business portion of the home such as repairs are deductible in full , however subject to gross income limit . Indirect expenses, i.e. Expenses which are relateable to the entire home like mortgage interest is deductible based upon percentage of house used for business purposes . Unrelated expenses I.e. expense for part of home which is not used for business purposes is not at all deductible.

In the present case it is clearly mentioned that expenses are incurred for redecoration of business part of the house i.e. it is a direct expense which is deductible in full on i.e. actual amount of expense incurred which is $3500.