Author Topic: Calculating home office deduction  (Read 732 times)

jpdx

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Calculating home office deduction
« on: January 31, 2018, 09:53:21 AM »
My wife and I have a partnership and are trying to figure our home office deduction. Is there a resource for filing out the IRS Publication 587 "Worksheet To Figure the Deduction for Business Use of Your Home"? Is there an excel file available?

Or does any version of Turbo Tax walk you through in the interview? I know TT walks you through if you have a Schedule C business, but does not appear to do it for partnership K-1 income. Arg.

terran

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Re: Calculating home office deduction
« Reply #1 on: January 31, 2018, 10:09:04 AM »
Taxact will walk you through it, so I'm guessing Turbotax will too.

Something to be aware of is if you own your home and claim a home office deduction, you will owe depreciation recapture when you sell. This doesn't apply if you use the simplified method ($5/sq ft up to 300sq ft of home office), so that might make sense if you don't want to deal with it. Depreciation recapture doesn't happen if you rent, so in that case using the normal might make more sense (it might make more sense if you own too, just be aware that you'll have to keep track and pay some taxes back later).

jpdx

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Re: Calculating home office deduction
« Reply #2 on: January 31, 2018, 11:07:07 AM »
Terran, I would like to use the actual expense method because I have high housing costs and significant home maintenance expenses.

In my past experience, TurboTax Deluxe does not walk me through this deduction because the business is a partnership -- income is shown on Schedule E, not Schedule C.

terran

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Re: Calculating home office deduction
« Reply #3 on: January 31, 2018, 11:30:30 AM »
Ah, tricksy. Yeah, I don't know about that. I file Schedule C.

jpdx

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Re: Calculating home office deduction
« Reply #4 on: January 31, 2018, 05:48:23 PM »
I'll ask the question another way:

Does Turbotax Premiere (2017 desktop version) provide step-by-step guidance on the home office deduction for partnership K-1 income? I know that in the past Deluxe has not.

jpdx

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Re: Calculating home office deduction
« Reply #5 on: February 04, 2018, 12:59:15 PM »
Update: TurboTax Premiere does NOT provide any guidance. Anyone have any suggests for my question below:

Is there a resource for filing out the IRS Publication 587 "Worksheet To Figure the Deduction for Business Use of Your Home"? Is there an excel file available?

Cpa Cat

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Re: Calculating home office deduction
« Reply #6 on: February 04, 2018, 01:03:53 PM »
You need to fill out Form 8829 and get it into your return. Form 8829 calculates that deduction.

Then it drops in on Schedule E as a deduction.

I would assume there's a prompt you're missing somewhere. Maybe in the K-1 screen? There should be a question somewhere in there about whether or not you have unreimbursed partnership expenses.

I found this:

Quote
Enter your partnership K-1 information in TurboTax. As you go through the screens entering your information, you will eventually come to a screen entitled "describe your partnership". Be sure to check the box "I am required to pay supplemental business expenses...." You will be prompted to enter your expenses once this is done.

newgirl

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Re: Calculating home office deduction
« Reply #7 on: February 04, 2018, 01:09:45 PM »
I just did taxes with TurboTax on Friday, I just got the basic version, no extras, and they walked me through the whole home office deduction calculation(s)

jpdx

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Re: Calculating home office deduction
« Reply #8 on: February 05, 2018, 12:40:50 AM »
Cpa Cat,

Yes, indeed there is a prompt on the K-1 entry screen regarding UPE, which I have checked. However, TurboTax instructs me to use the worksheet on Pub 587, which I have to fill out and calculate manually, then enter the resulting number (not fun!). My understanding is that Form 8829 is for Schedule C businesses, not partnerships, at least thats what the instructions say. Not sure if there is any difference since they look similar.

Also not sure if I need to also include Form 4562 for depreciation of the house or if my Pub 587 worksheet takes care of that. Instructions on this worksheet are unclear to me.
« Last Edit: February 05, 2018, 07:51:27 PM by jpdx »

katsiki

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Re: Calculating home office deduction
« Reply #9 on: February 07, 2018, 11:17:55 AM »
TaxAct does this well.  Maybe consider using TA next year.

CareCPA

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Re: Calculating home office deduction
« Reply #10 on: February 07, 2018, 07:06:05 PM »
Also, before you spend the time, make sure you are using the office solely and exclusively for business. You can't just have a corner of a room. It needs to be a separate room that is literally only used for business.
I've heard stories (through the grapevine, I have not independently verified) that deductions have been disallowed simply because a kid watched a movie in the room.
As with all things, YMMV, and do your own due diligence.

jpdx

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Re: Calculating home office deduction
« Reply #11 on: February 07, 2018, 11:08:27 PM »
CareCPA, yes, my home office is used regularly and exclusively for business. It's legit! Do you have any suggestions regarding my previous post, the questions about Form 4562 and Pub 587?

CareCPA

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Re: Calculating home office deduction
« Reply #12 on: February 08, 2018, 05:35:19 AM »
I can't help on the software side (it's not the one I use), but it looks like you prepare the Pub 587 worksheet to get your number, and then drop it in on Schedule E. Per Schedule E instructions:

"Unreimbursed Partnership Expenses
You can deduct unreimbursed ordinary and necessary partnership expenses you paid on behalf of the partnership on Schedule E if you were required to pay these expenses under the partnership agreement (except amounts deductible only as itemized deductions, which you must enter on Schedule A).
Enter unreimbursed partnership expenses from nonpassive activities on a separate line in column (h) of line 28. Do not combine these expenses with, or net them against, any other amounts from the partnership.
If the expenses are from a passive activity and you are not required to file Form 8582, enter the expenses related to a passive activity on a separate line in column (f) of line 28. Do not combine these expenses with, or net them against, any other amounts from the partnership.
Enter “UPE” in column (a) of the same line." [emphasis mine]

Part 3 on the 587 worksheet is all about depreciation. It appears you would fill that out in lieu of a 4562.

bacchi

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Re: Calculating home office deduction
« Reply #13 on: February 08, 2018, 09:20:12 AM »
Also, before you spend the time, make sure you are using the office solely and exclusively for business. You can't just have a corner of a room. It needs to be a separate room that is literally only used for business.
I've heard stories (through the grapevine, I have not independently verified) that deductions have been disallowed simply because a kid watched a movie in the room.
As with all things, YMMV, and do your own due diligence.

Wait, I'm pretty sure that a corner of the room will work, as long as it's dedicated. I remember reading an example in the IRS documentation. I can't find that example now but I did find this:

Quote from: irs in pub 587
The space does not need to be marked off by a permanent partition.

Which indicates that a rug could partition the room into "office" and "kid hang out" as long as the rug is verboten to the kids.

CareCPA

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Re: Calculating home office deduction
« Reply #14 on: February 08, 2018, 09:55:49 AM »
I think the phrase in question is "The area used for business can be a room or other separately identifiable space."
That's up to your interpretation. I would suggest reading case-law on that.
If you have the example you mentioned, I would be interested in seeing it. I haven't delved into this topic as deeply as some others probably have.

jpdx

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Re: Calculating home office deduction
« Reply #15 on: February 08, 2018, 08:11:20 PM »
Part 3 on the 587 worksheet is all about depreciation. It appears you would fill that out in lieu of a 4562.

That's what makes sense to me too. One form and done. However, the instructions on Pub 587 say this:

Quote
Figure your depreciation deduction on lines 34 through 39. On line 34, enter the smaller of the adjusted basis or the fair market value of the property at the time you first used it for business. Do not adjust this amount for changes in basis or value after that date. Allocate the ba- sis between the land and the building on lines 35 and 36. You cannot depreciate any part of the land. On line 38, enter the correct percentage for the current year from the tables in Pub. 946. Multiply this percentage by the busi- ness basis to get the depreciation deduction. Enter this figure on lines 39 and 27. Complete and attach Form 4562 to your return if this is the first year you used your home, or an improvement or addition to your home, in business. [emphasis mine]

katsiki

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Re: Calculating home office deduction
« Reply #16 on: February 09, 2018, 06:27:55 AM »
That sounds right to me since home office use will cause deprecation (upon sale, I think).  I wish I could help more...  The software took care of this in the years we had that deduction.