Regarding the simplified method of computing the office in the home deduction, comment on the following independent factors.
a. Taxpayer has set aside 400 square feet for use as an office.
b. Taxpayer has repainted and recarpeted the office area.
c. In past years, taxpayer has always taken the deduction using the regular (actual expense) method.
d. The net income from the business is not large.
What will be an ideal response?
?
| a. | Unfortunately, the deduction is limited to 300 square feet, so the maximum allowed is $1,500 (300 × $5). |
| b. | Direct expenses cannot be claimed under this method. |
| c. | Because the choice allowed is annual, the method used in the past does not matter. However, no carryover of unused deduction can be claimed. Also, a prior choice cannot be changed but is binding on the taxpayer. |
| d. | The deduction cannot exceed the net income from the property. Furthermore, any unused deduction amount cannot be carried over to future years. |
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