8829 or Sch A?

[Possi]

A strange thing just happened...

I took Mortg Int and RE Tax on the Sch A and Fed and state refund total was 6617.

Looking over the printed return, I see that I didn't enter that information on the 8829 office in home.

When I moved INT and RE Tax off the Sch A and onto the 8829, the Federal and state refunds were reduced to 5938!

The ripple effect was that in both cases, the 8829 zeroed out the net income to the business, but when there was no INT and RE Tax on the 8829, it allowed the carried-forward losses to kick in, still zeroing out the income....AND the Sch A kicked in and took the entire deduction.

SOOOO .... what to do? Is it OK to flip that Mort Int and RE tax off the 8829 and back on the Sch A to take full advantage of the deduction?

[dan doshan]

Never thought of that. Would be a good idea if it is kosher. I too have a couple of clients where they have carryover office in the home expenses that could be used up that way. By not entering mortgage interest on 8829.

[BP.]

Pub 587, p. 7.
TTB p. 5-16 (Itemized Deductions) & TTB p. 5-17 (Deduction Limitation.)

These sources show the order in which to take the OIH deductions. Looks like mortgage interest and RE taxes are wedged in after net income but before operating expenses.

[Possi]

Not taking it?

Pub 587, p. 7.
TTB p. 5-16 (Itemized Deductions) & TTB p. 5-17 (Deduction Limitation.)

These sources show the order in which to take the OIH deductions. Looks like mortgage interest and RE taxes are wedged in after net income but before operating expenses.

So, is there anything wrong with NOT taking it on the OIH? I don't see any reason that I couldn't. I don't think that it is mandatory that it goes on OIH.

[BP.]

So, is there anything wrong with NOT taking it on the OIH? I don't see any reason that I couldn't. I don't think that it is mandatory that it goes on OIH.

I am looking at Pub 587, p.7 under Deduction Limit.

Language here:
"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)). “

[Burke]

You don't say whether the OIH was due to a Sche C, F, or employee 2106. It makes a difference. If you use the Sche A OIH worksheet (at least in ATX software) for an employee who deducts on Line 21, you will note mortgage int and real estate taxes do not appear on the worksheet since they are already deducted on Sche A in full. If you complete the worksheet for 8829 for these two items, it will prorate between 8829 and Sche A. If a person is taking OIH deduction to offset business income and thereby reduce SE tax, it makes sense that he must use these items to the extent applicable.

[JG EA]

Also if EIC is involved and it is on a C then it does have to go on the 8829.

[BP.]

You don't say whether the OIH was due to a Sche C, F, or employee 2106. It makes a difference. If you use the Sche A OIH worksheet (at least in ATX software) for an employee who deducts on Line 21, you will note mortgage int and real estate taxes do not appear on the worksheet since they are already deducted on Sche A in full. If you complete the worksheet for 8829 for these two items, it will prorate between 8829 and Sche A. If a person is taking OIH deduction to offset business income and thereby reduce SE tax, it makes sense that he must use these items to the extent applicable.

Probably Sch C, not a 2106, since there was a change in the results. (As you say, using 2106 would shift 100% of MI & RE tax to Sched A, which is where it was to begin with.)

[taxea]

A strange thing just happened...

I took Mortg Int and RE Tax on the Sch A and Fed and state refund total was 6617.

Looking over the printed return, I see that I didn't enter that information on the 8829 office in home.

When I moved INT and RE Tax off the Sch A and onto the 8829, the Federal and state refunds were reduced to 5938!

The ripple effect was that in both cases, the 8829 zeroed out the net income to the business, but when there was no INT and RE Tax on the 8829, it allowed the carried-forward losses to kick in, still zeroing out the income....AND the Sch A kicked in and took the entire deduction.

SOOOO .... what to do? Is it OK to flip that Mort Int and RE tax off the 8829 and back on the Sch A to take full advantage of the deduction?

Is it possible that the difference is due to the limit that could be taken this year on the 8829 and is a part of the carryover? I don't think you should put it on Sch A just because it gives a larger refund.

[ChEAr$]

Back to OP's original question.

No problem atall in taking schedule deductions for those items in full only on the schedule a.

[Larmil]

Is it possible that the difference is due to the limit that could be taken this year on the 8829 and is a part of the carryover? I don't think you should put it on Sch A just because it gives a larger refund.

I agree. Besides, the carryover has the potential of reducing SE tax.

[taxea]

Back to OP's original question.

No problem atall in taking schedule deductions for those items in full only on the schedule a.

Harlan--if an 8829 is done isn't it more accurate to put it there?

[ChEAr$]

Harlan--if an 8829 is done isn't it more accurate to put it there?

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.

[BP.]

But here client has a choice.

I'm just hung up on this language in the OIH pub that says "expenses for business use of your home are deducted from gross income in the following order . . . "

If MI & RE taxes are to be specifically inserted at a particular point into the computation for the deduction limit, how can that be circumvented by choice?

[Gretel]

I believe there is some confusion about where to take the loss and where it just affects calculations.

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.