Taxation of Dwelling Units and Home Office Expenses

School: Methodist University - Course: ACC 3860 - Subject: Accounting

Q 1: How does a taxpayer determine whether a dwelling unit is treated as a residence or nonresidence for tax purposes? A dwelling unit is considered a residence if the taxpayer's number of personal-use days of the home is more than the greater of 14 days or 10% of the number of rental days during the year. If it does not meet these requirements, it is considered a nonresidence (or rental property). These personal use days include: the owner or relative of the owner stays in the home, a nonowner stays in the home under a vacation home exchange, or the owner rents the property for less than fair market value. A nonresidence includes: the owner rents the property at fair market value or the home is being repaired for rental use. Q 5: What are the ownership and use requirements a taxpayer must meet to qualify for the exclusion of gain on the sale of a residence? To qualify for the exclusion, the taxpayer must meet both an ownership and a use test for the residence. The ownership test means the taxpayer must have owned the property for a total of two or more years during the five-year period ending on the date of the sale. The use test means the taxpayer must have used the property as her principal residence for a total of two or more years during the five-year period ending on the date of the sale. Problem 63: A. ExpenseAmountType Allocated to home office (6.67%) 10.00% of indirect (300/4500 sq.ft) Real property taxes$3,600Indirect$240 Interest on home mortgage14,000Indirect933 Operating expenses of home5,000Indirect333 Depreciation12,000Indirect800 Repairs to home theater room1,000Unrelated0 Total expenses$35.600$2,306 B. Tier 1- (240+933)$1,173 Tier 2-$333 Tier 3-$800 C.

Home office expense deduction: (2,000-1,173-333)$494 Home office expense carried over: (2,306-2,000)$306