Schedule C Example The filled-in forms for John Stephens that follow show how toreport deductions for the business use of your home if you fileSchedule C (Form 1040). Only the expenses and information that relateto the business use of the home are discussed. Form 4562.The following bold line references apply to Form 4562. Part I, lines 1-13.John began using his home for business in January of this year. Hepurchased a new computer and filing cabinet to use in his business.The computer, used 100% for business, cost $3,200. The filing cabinetcost $600. He elects to take the section 179 deduction for both items. John completes Part I of Form 4562. He enters the cost of both thecomputer and filing cabinet, $3,800, on line 2 and completes lines 4and 5. On line 6, he enters a description of each item, its cost andthe cost he elects to expense. He completes the remaining lines inPart I. Part II, line 15c.John converted to business use a desk and chair he had purchased in1994 for personal purposes. In 1994 he paid $1,500 for them. The fairmarket value in 1999 is $550. Since the fair market value is less thanthe cost, his depreciable basis is $550. In Part II, line 15c, column (c), he enters $550 for the desk andchair. He completes columns (d) through (f). Since the furniture is7-year property under MACRS, he uses the table on page 14 orTable A-1 in Publication 946 to find the rate of 14.29% forproperty placed in service during the first month of the year. Hemultiplies $550 by 14.29% (.1429) and enters $79 in column (g). Part II, line 15i.Because this is the first year John used his home for business, hemust figure the depreciation on line 15i. On line 15i, column (c), heenters $11,000, the depreciable basis of the business part of hishome. (For a discussion on how the depreciable basis is figured, seeStep 3 under Form 8829, Part II.) Because theproperty is 39-year nonresidential real property under MACRS, he usesthe table on page 9 or Table A-7a in Publication 946 tofind the rate of 2.461% for property placed in service during thefirst month of the year. He multiplies $11,000 by 2.461% (.02461) andenters $271 in column (g). Part IV, line 21.John totals the amounts on line 12 and line 15 in column (g) andenters the total on line 21. He enters both the section 179 deduction($3,800) and the depreciation on the furniture ($79) on line 13 ofSchedule C. He enters the depreciation on his home ($271) on Form8829, line 28. Schedule C.The following bold line references apply to Schedule C. Line 13.John enters the amount from Form 4562 for his section 179 deduction($3,800) and the depreciation deduction for his office furniture($79). Line 16b.This amount is the interest on installment payments for thebusiness assets John uses in his home office. Line 25.John had a separate telephone line in his home office that he usedonly for business. He can deduct $347 for the line. Lines 28-30.On line 28, he totals all his expenses other than those for thebusiness use of his home, and then he subtracts that total from hisgross income. He uses the result on line 29 to figure the deductionlimit on his expenses for the business use of his home. He enters thatamount on line 8 of Form 8829 and then completes the form. He entersthe amount of his home office deduction from line 34, Form 8829, online 30 of Schedule C. Form 8829, Part I.John uses one room of his home exclusively and regularly to meetclients. In Part I of Form 8829 he shows that, based on the squarefootage, the room is 10% of his home. Form 8829, Part II.John uses Part II of Form 8829 to figure his allowable home officededuction. Step 1.First, he figures the business part of expenses that would bedeductible even if he did not use part of his home for business.Because these expenses ($4,500 deductible mortgage interest and $1,000real estate taxes) relate to his entire home, he enters them in column(b) on lines 10 and 11. He then subtracts the $550 business part ofthese expenses (line 14) from his tentative business profit (line 8).The result, $25,002 on line 15, is the most he can deduct for hisother home office expenses. Step 2.Next, he figures his deduction for operating expenses. He paid $300to have his office repainted. He enters this amount on line 18, column(a) because it is a direct expense. All of his other expenses ($400homeowner's insurance, $1,400 roof repairs, and $1,800 heating andlighting) relate to his entire home. Therefore, he enters them incolumn (b) on the appropriate lines. He adds the $300 direct expenses(line 21) to the $360 total for indirect expenses (line 22) and entersthe total, $660, on line 24. Because this amount is less than hisdeduction limit, he can deduct it in full. The $24,342 balance of hisdeduction limit (line 26) is the most he can deduct for depreciation. Step 3.Next, he figures his allowable depreciation deduction for thebusiness use of his home in Part III of Form 8829. The adjusted basisof his home is $130,000, which is less than the fair market value of$160,000. He figures the value of the land to be $20,000. He subtractsthe land value from the adjusted basis. He multiplies the result($110,000) by the percentage on line 7 to get the depreciable basis ofthe business part of his home ($11,000). Because he began using the office in January of this year, it is39-year nonresidential real property under MACRS. Using the table onpage 9 or Table A-7a in Appendix A ofPublication 946, he finds that the depreciation percentage for thefirst year of the recovery period, for assets placed in service in thefirst month, is 2.461%. His depreciation for 1999 (line 40) is $271(.02461 $11,000). He enters that amount in Part II on lines 28and 30. Because it is less than the available balance of his deductionlimit (line 26), he can deduct the full depreciation. John must alsocomplete Form 4562. See Form 4562, earlier. Step 4.Finally, he figures his total deduction for his home office byadding together his otherwise deductible expenses (line 14), hisoperating expenses (line 25), and depreciation (line 31). He entersthe result, $1,481, on lines 32 and 34, and on Schedule C, line 30. John Stephen's--Schedule C John Stephen's--Form 8829 John Stephen's--Form 4562 Worksheet to Figure the Deduction for Business Use of Your Home