Publication 587 - Business Use Of Your Home - 2002 Page 19
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27total fair market value in 2002 is $550. The fair market
Form 8829, Part II. John uses Part II of Form 8829 to
value is less than the cost, so his depreciable basis is
figure his allowable home office deduction.
$550.
Step 1. First, he figures the business part of expenses
In Part III, line 19c, column (c), he enters $550 for the
that would be deductible even if he did not use part of his
desk and chair. He completes columns (d) through (f). The
home for business. These expenses ($4,500 deductible
furniture is 7-year property under MACRS. He uses the
mortgage interest and $1,000 real estate taxes) relate to
MACRS Percentage Table for 5- and 7-Year Property
his entire home, so he enters them in column (b) on lines
Using Half-Year Convention in this publication or Table A-1
10 and 11. He then subtracts the $550 business part of
in Publication 946 to find the rate of 14.29% for property
these expenses (line 14) from his tentative business profit
placed in service during the first month of the year. He
(line 8). The result, $25,002 on line 15, is the most he can
multiplies $550 by 14.29% (.1429) and enters $79 in col-
deduct for his other home office expenses.
umn (g).
Step 2. Next, he figures his deduction for operating
Part III, line 19i. This is the first year John used his
expenses. He paid $300 to have his office repainted. He
home for business, so he must figure the depreciation on
enters this amount on line 18, column (a) because it is a
line 19i. On line 19i, column (c), he enters $11,000, the
direct expense. All his other expenses ($400 homeowner’s
depreciable basis of the business part of his home. He
insurance, $1,400 roof repairs, and $1,800 heating and
began using his home for business in January. (For a
lighting) relate to his entire home. Therefore, he enters
discussion on how he figures his depreciation deduction,
them in column (b) on the appropriate lines. He adds the
see Step 3 under Form 8829, Part II, later.) He enters $271
$300 direct expenses (line 21) to the $360 total for indirect
in column (g).
expenses (line 22) and enters the total, $660, on line 24.
Part IV, line 22. John totals the amounts on line 12 and
This amount is less than his deduction limit, so he can
line 19 in column (g) and enters the total on line 22. He
deduct it in full. The $24,342 balance of his deduction limit
enters both the section 179 deduction ($3,800) and the
(line 26) is the most he can deduct for depreciation.
depreciation on the furniture ($79) on line 13 of Schedule
Step 3. Next, he figures his allowable depreciation de-
C. He enters the depreciation on his home ($271) on Form
duction for the business use of his home in Part III of Form
8829, line 28.
8829. The adjusted basis of his home is $130,000, which is
Schedule C. The following line references apply to
less than the fair market value of $160,000. He figures the
Schedule C.
value of the land to be $20,000. He subtracts the land
value from the adjusted basis. He multiplies the result
Line 13. John enters the amount from Form 4562 for his
section 179 deduction ($3,800) and the depreciation de-
($110,000) by the percentage on line 7 to get the deprecia-
ble basis of the business part of his home ($11,000).
duction for his office furniture ($79).
He began using the office in January of this year, so he
Line 16b. This amount is the interest on installment
uses the MACRS Percentage Table for 39-Year Nonresi-
payments for the business assets John uses in his home
dential Real Property in this publication or Table A-7a in
office.
Appendix A of Publication 946. The depreciation percent-
Line 25. John had a separate telephone line in his
age for the first year of the recovery period for assets
home office that he used only for business. He can deduct
placed in service in the first month is 2.461%. His deprecia-
tion deduction for 2002 (line 40) is $271 (.02461 ×
$347 for the line.
$11,000). He enters that amount in Part II on lines 28 and
Lines 28-30. On line 28, he totals all his expenses other
30. This is less than the available balance of his deduction
than those for the business use of his home, and then
limit (line 26), so he can deduct the full amount as depreci-
subtracts that total from his gross income. He uses the
ation. John also must complete Form 4562 for 2002, so he
result on line 29 to figure the deduction limit on his ex-
enters $271 on line 19i, column (g). See Form 4562,
penses for the business use of his home. He enters that
earlier.
amount on line 8 of Form 8829 and then completes the
form. He enters the amount of his home office deduction
Step 4. Finally, he figures his total deduction for his
from line 34, Form 8829, on line 30 of Schedule C.
home office by adding together his otherwise deductible
expenses (line 14), his operating expenses (line 25), and
Form 8829, Part I. John uses one room of his home
depreciation (line 31). He enters the result, $1,481, on
exclusively and regularly to meet clients. In Part I of Form
lines 32 and 34, and on Schedule C, line 30.
8829 he shows that, based on the square footage, the
room is 10% of his home.
Page 19
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