Discussion:Allocation of Expenses – Schedule A vs. 2106

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Discussion Forum Index --> Advanced Tax Questions --> Allocation of Expenses – Schedule A vs. 2106


Discussion Forum Index --> Tax Questions --> Allocation of Expenses – Schedule A vs. 2106

Marque (talk|edits) said:

10 September 2013
I have a client who is using one-third of her home for the convenience of her employer. She is required to work from her home which she owns. I therefore allocated property taxes and mortgage interest payments between schedule A and form 2106. However, her AGI is so high that she does not pass the 2% test. Thus, the one-third of interest and tax payments are not being deducted on her schedule A as a miscellaneous itemized deduction. The other two-thirds is being deducted.

Am I forced to make this allocation or can I deduct 100% of the property taxes and mortgage interest on lines 6 and 10 of schedule A to get a larger deduction?

Kevinh5 (talk|edits) said:

10 September 2013
The latter.

Death&Taxes (talk|edits) said:

10 September 2013
Check your software; mine puts the amounts into the calculation of allowable Home Office deductions, but does not include them on the 2106 but rather includes them on Schedule A as interest and taxes. Legitimate home acquisition debt could be lost to AMT if included on the 2106.

Marque (talk|edits) said:

10 September 2013
I am using Taxwise. Unless there is something I am overlooking, I am required to go to both schedule A and form 2106 to enter the expenses. The software program will not take the 2/3 that does not belong on 2106 and allocate them to schedule A as itemized deductions. When I am filling out form 8829, it will make that allocation.

I guess I will have to enter all the expenses manually on schedule A.

Death&Taxes (talk|edits) said:

10 September 2013
But they do belong in the calculation of the 2106 home office: supposed wages for this home office are 5,000 and the percentage of taxes and interest are $6,000......the $6000 will go on Sch A, but the home office will be carried forward.

DonPriebe (talk|edits) said:

11 September 2013
Pub 587 explicitly says to deduct all the mortgage interest in the interest section of Schedule A and not in the Misc Deductions section. Ditto for the property taxes:

Deductible mortgage interest. Although you generally deduct expenses for the business use of your home on Schedule A (Form 1040), line 21, unreimbursed employee expenses, do not include any deductible home mortgage interest on that line. Instead, deduct both the business and nonbusiness parts of this interest on line 10 or 11 of Schedule A (Form 1040).

Real estate taxes. Deduct both the business and nonbusiness parts of your real estate taxes on line 6 of Schedule A (Form 1040).

Death&Taxes (talk|edits) said:

11 September 2013
Despite 587, you must first go thru the calculation I have outlined:

"Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following.

1. The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). These expenses are discussed in detail under Deducting Expenses , later."

Publication 587


It would be highly unusual for the percentage of wages to be so small as to eliminate the other deductions but it can happen. Jane Smith prepares tax returns for Death & Taxes at their office, earning $90,000 on a W-2. She has a side job with Len's Fast Taxes. Len pays her $10,000 on a W-2 but does not supply an office. 10% of her total earnings, or 10K will be the limit on her home office deduction. 10% of her interest and taxes equals $9,000......her deduction for utilities etc is limited to $1000 but the $9000 appears on Schedule A. You cannot ignore the Sec 163 & 164 deductions when computing allowable home office, and that is why the software is trying to force the answer to the 2106 first......either the OP's software is poorly written or it has a method by which this calculation is done and the proper placement of the expenses happens.

Newby (talk|edits) said:

11 September 2013
I am also a Taxwise user, and your problem is you are trying to use the 8829. Taxwise does not use 8829 with the 2106 they use a work sheet which you link to from the 2106. On the work sheet you enter the interest and taxes as indirect expenses and the amount is calculated, however, it is not added to the total office expense amount. It is only a calculation. Other home office expense, such as depreciation, is carried to the 2106. Then you will enter the total interest and taxes on the schedule A.

Final word be sure not a commercial life on the office. I have had many home office deduction clients using a residential rental deprciatrion life.

Newby (talk|edits) said:

11 September 2013
Woops! last sentence should say use a commercial life, 39 years, and not residential.

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