8829 or Sch A?

[Possi]

C=no change EIC=no change Sch A=change

I agree that RE taxes and mortgage interest can be fully deducted on Schedule A.

I also agree that they need to flow into the calculations on Form 8829 to not inflate the total expense amount to be taken in current year or to free up losses from prior years.

If I take the RE tax and MI on the 8829, the Sch A will not be triggered with the difference flowing back to the A. Not enough for a Sch A.

If I take it exclusively on the Sch A, it allows the carryover loss on the 8829, does not change the Sch C OR the EIC AT ALL. NOT AT ALL.

It does however, enable the Sch A to kick in and reduce taxable income.

Sch C no change.
EIC no change.

What's the harm? I think it's a pretty good thing. I swear I don't see anywhere that I can't do this.

You can't limit deductions to manipulate EIC, I know that. And I am not doing that. Not at all.

[Burke]

I agree that RE taxes and mortgage interest can be fully deducted on Schedule A.

I also agree that they need to flow into the calculations on Form 8829 to not inflate the total expense amount to be taken in current year or to free up losses from prior years.

They cannot be fully deducted on Sche A, and simultaneously flow into the calcs for 8829 and a percentage taken there. That would result in an overdeduction. Apparently in Possi's case, they don't have enough to itemize unless the MI & RET are input to Sche A (and not on 8829) because they don't have enough to itemize. What the MI and RET are doing on Sche A is allowing TP to take other deds on Sche A because he is now over the threshold for the standard ded. IF he has a legitimate business use of OIH that can be justified, then IMO he must take the proper % of these two items on that form. Lesser refund, yes, but I am not so sure there is a choice in the matter. Either dispense with the OIH altogether and take on Sche A, or vice-versa.

[taxea]

Sure, for us accountants it's more accurate a to measure profit.

But here client has a choice. I hope you don't ask for a cite, cause I haven't one, but remembering this same discussion on another board at another time some years ago.

Okay Harlan...I understand this for accounting purposes but when you take the accounting over to the tax return I still think that the 8829 is the proper place to put it.

To others...what are the total consequences to the business end and SE of putting the interest and taxes on Sch A rather than 8829? My program takes the Sch A percentage over to the Sch A. How can you justify taking depreciation for the OIH on the 8829 but not the interest and taxes?

Isn't this the same issue as not reporting expenses because it changes the EIC or other items. I guess I just prefer to put things where they should be rather than where they could be.

[joanmcq]

What could also be happening is that with the RE tax & interest on the 8829, more of the other expenses of the OIH are being limited due to income on the Sch C, and being carried forward instead of being deducted. If you move the expenses to the Sch A, then the operating expenses that were formerly limited are now deducted. So more deductions. And since there is a reason for the order of deductions, IMHO, you can't decide to deduct all of the RE expenses on the A, without having them flow from the 8829.

[BP.]

I swear I don't see anywhere that I can't do this.

Here's what stops me from treating OIH the way you're proposing:

"Your deduction of utilities is limited to income from the business minus MI & RE tax."

Not an exact quote, but a boiled down one. I don't see an election to do it differently.

[Gary2]

You can't limit deductions to manipulate EIC, I know that. And I am not doing that. Not at all.

You also can't limit deductions to manipulate Social Security taxes. By using up carryover losses now, you're manipulating future Social Security taxes. (And, in theory, could be manipulating future EIC, though that's less likely.)

[dtlee]

Not sure if this is the concensus above, but in order to deduct office-in-home expenses on an 8829, the income must first be reduced by otherwise deductible expenses which include home mortgage interest and real estate taxes. It is not an option decide not to not reduce business expenses by otherwise deductible expenses and instead carry those directly to Schedule A (whether or not the IRS would notice is another story).

This is one of the problems with office in home which sometimes causes losses to be suspended for long periods preventing a client from ever showing a profit. The only thing to check would be whether the percentage of the home being taken for business purposes is correct. If so, you must take the otherwise deductible expenses first.

[taxmom34]

Possi -- how would it affect the return if you did not use the OIH at all? the very few that i have done over the years did not give much of a deduction (very little or none) or if on shcedule A did not go over the 2% so , it was worthless.

[Possi]

Terribly

Possi -- how would it affect the return if you did not use the OIH at all? the very few that i have done over the years did not give much of a deduction (very little or none) or if on shcedule A did not go over the 2% so , it was worthless.

It would greatly decrease the refund.