10/31/2015

Chapter 14 Pre-Built Problems

Chapter 14 Pre-Built Problems

6.

Spilker, Taxation of Individuals and Business

Entities, 6e Library Course: ACCT 615 Summer
2015 D

Megan Reed
instructions | help

value:

10.00 points

Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office
in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related
tasks. Her business expenses, other than home office expenses, total $5,600. The following home-related
expenses have been allocated to her home office under the actual expense method for calculating home
office expenses.
Real property taxes
Interest on home mortgage
Operating expenses of home
Depreciation

$1,600
5,100
800
1,600

Also, assume that not counting the sole proprietorship, Ritas AGI is $60,000.
Assume Ritas consulting business generated $13,000 in gross income for the current year. Further,
assume Rita uses the actual expense method for computing her home office expense deduction.
a. What is Ritas home office deduction for the current year?
Home office deduction

b. What is Ritas AGI for the year?

AGI

c. Assume the original facts, except that Rita is an employee, and not self-employed (she uses the home
office for the convenience of the employer). Consequently, she does not receive any gross income from
the (sole proprietorship) business and she does not incur any business expenses unrelated to the home
office. Finally, her AGI is $60,000 consisting of salary from her work as an employee. What effect do
her home office expenses have on her itemized deductions?
Itemized deduction

d. Assuming the original facts, what types and amounts of expenses will she carry over to next year?

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10/31/2015

Chapter 14 Pre-Built Problems

Amounts of
expenses
Tier 2 operating expenses
Tier 3 depreciation expenses

References

Problem

eBook & Resources

Difficulty: 2 Medium

Learning Objective: 14-06 Describe the requirements

necessary to qualify for home office deductions and
compute the deduction limitations on home office
deductions.

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