1. Mr. C, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home’s square footage. This year, Mr. C incurred the following expenses in connection with his home: Home mortgage interest $12,980 Property tax on residence 2,200 Homeowner’s insurance 1,475 Utilities 2,100 Furnace repairs 300 Mr. C purchased the home in 1998 for $225,000. For MACRS depreciation purposes, he allocated $185,000 to the building and $40,000 to the land. Compute his home office deduction for the year.

Mr. C

Home office deduction for the year is:

= $20,405.50

Explanation:

Qualifying home office expenses:

Home mortgage interest      $12,980

Property tax on residence       2,200

Homeowner’s insurance           1,475

Utilities                                       2,100

Furnace repairs                           300

Depreciation on building      185,000

Qualified home expenses $204,055

10% for home office = $20,405.50

b) Mr. C is entitled to deduct home office expenses relating to mortgage interest, insurance, utilities, repairs, and depreciation, including furnace repairs. The deductions for a home office are based on the percentage of Mr. C's home devoted to his business use.

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