Question

Brooke owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home where she meets with clients, prepares bills, and performs other work-related tasks. The home office is 300 square feet and the entire house is 4,500 square feet. Brooke incurred the following home-related expenses during the year. Unless indicated otherwise, assume Brooke uses the actual expense method to compute home office expenses. Real property taxes Interest on home mortgage Operating expenses of home Depreciation Repairs to home theater room $ 3,600 14,800 5,eee 12.009 1,800 Problem 14-63 Parts a, b, and c Required: a. What amount of each of these expenses is allocated to the home office? b. What are the total amounts of tier 1. tier 2. and tier 3 expenses, respectively, allocated to the home office? c. If Brooke reported $2.000 of Schedule C net income before the home office expense deduction, what is the amount of her home office expense deduction and how much of the home office expenses, if any, would she carry over to next year? (For all requirements, Leave no answer blank. Enter zero if applicable. Do not round Intermediate calculations. Round your final answers to the nearest whole dollar amount.) Complete this question by entering your answers in the tabs below. Rega Reqb Reg

Answer 1

a. What amount of each of these expenses is allocated to the home office?

Expense	Amount	Type	Allocated to home office
			(300/4500 sq ft) =6.667%
Real property taxes	3600	Indirect	240
Interest on home mortgage	14000	Indirect	933
Operating expenses at home	5000	Indirect	333
Depreciation	12000	Indirect	800
Repairs to home theatre room	1000	Unrelated	0
Total expenses	35600		2306

B. What are the total amounts of tier 1, tier 2, and tier 3 expenses allocated to the home office?

Tier 1 expenses:      $1,173

Real property                              -$240

Interest on home mortgage - $ 933

Tier 2 expenses:

Operating expenses of the home $333

Tier 3 expense:

Depreciation $800

c. If Brooke reported $2,000 of Schedule C income before the home office expense deduction, what is the amount of her home office expense deduction and what home office expenses, if any, would she carry over to next year?

	$
Income before home office expense (as per schedule C)	$2,000
Tier 1 expense
Real property taxes	$240
Interest on home mortgage	$933
	$827
Tier 2 expense
Operating expense at home	333
	$494
Tier 3 expense
Depreciation	$800
Loss to carry over	($306)

Answer 2

The answer for e. for this question is: Home office expense deduction ($1,500) Home office expense carried over ($306)