Question 1

A taxpayer has a home office that is used exclusively and regularly as the principal place of business. The gross income from the business is $10,000. Direct expenses of the business (supplies, etc.) are $6,000. Allocable home expenses (mortgage interest, taxes, utilities, depreciation) total $5,000. What is the home office deduction allowed?

Accepted Answer

Home Office Deduction Limit: Cannot exceed business income AFTER direct expenses. Income $10k - Direct $6k = $4k limit. Expenses $5k. Deduction $4k. Carryforward $1k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Deducting the full amount to create a loss.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 4

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