Business use of Home when taking standard deduction

[nwtaxlady]

Client has business use of home (for Airbnb) and now takes the standard deduction for Federal. I enter in the property taxes, Mortgage Interest for the business use of home under the indirect expenses like any other year and this year my software tells me that I must check the box for "Allocate all mortgage interest and real estate taxes as excess when claiming the standard deduction" Can anyone explain this to me? On the business use of home form, it moves the interest and property taxes down to "excess mortgage interest and property taxes" but still in the indirect expenses column and still takes %. Can anyone explain this to me? Why is it different this year? I have had clients who didn't itemize for Federal in prior years and didn't have to do this.

[rbynaker]

It has to do with the Deduction Limitation on TTB 5-17. You can create a loss on Sch C with expenses that are deductible elsewhere (Schedule A). If the client doesn't itemize those expenses are moved down to the next tier and can not be used to create a loss. If there's plenty of income available to absorb all of the expenses then what section they are reported in has no tax impact.

Rick

[Dude]

Ok, then I wonder if a percentage of the home could then be depreciated? I say no

[Lion]

Dude, why no depreciation?

WTaxLady, TCJA.

[Dude]

Dude, why no depreciation?

WTaxLady, TCJA.

My understanding was when you take the home office deduction under the simplified method depreciation of home is not counted.

[Lion]

Is the OP using the simplified method? Then she doesn't need to enter in property taxes and such at all. But didn't she say she's entering in actual expenses for home office?

[Dude]

Is the OP using the simplified method? Then she doesn't need to enter in property taxes and such at all. But didn't she say she's entering in actual expenses for home office?

Hopefully not.

[nwtaxlady]

Is the OP using the simplified method? Then she doesn't need to enter in property taxes and such at all. But didn't she say she's entering in actual expenses for home office?

Correct, I am NOT using the simplified method. This is for actual expenses for the business use of home.

[nwtaxlady]

It has to do with the Deduction Limitation on TTB 5-17. You can create a loss on Sch C with expenses that are deductible elsewhere (Schedule A). If the client doesn't itemize those expenses are moved down to the next tier and can not be used to create a loss. If there's plenty of income available to absorb all of the expenses then what section they are reported in has no tax impact.

Rick

This is actually for a SCH E that taxpayer has an Airbnb rental. She has income, and after the business use of home still has a profit. It's just that she doesn't have a enough regular itemized deductions to have a SCH A and is taking the standard deduction for Federal. And my software gave me that notice (in original post). And first time I have seen that notice in the last 25 yrs.