SE Home Office Deduction Way Lower in 2022 than in 2021

[PrimaryMark]

Any ideas as to why my SE Home Office deduction would be almost half as much in 2022 (about $9k) as compared to 2021 (about $16k), with nearly the same values entered?

The only difference is that I have about 30% more SE income in 2022, but the same office size and nearly identical Home Office expenses.

I'm pulling my hair out on this one. Thanks!

[AnnetteB6]

As you are entering home office expenses, you will be asked some questions that do affect the expenses that are allowed to be claimed.  Pay close attention to the question asking about the percentage of time spent conducting business in the home office.  This question will place a limitation on the home office expenses based on the percentage that is entered and the self-employment income attributed to the office.

Also, if you happen to be claiming two home offices due to a move during the year, the allocating of expenses between the two offices can also affect the total expenses that can be claimed.

[VolvoGirl]

Do you have enough Net Profit to deduct it all?    Some expenses, such as home office or section 179 depreciation can only be used to reduce your schedule C taxable income to zero, and not to create a loss. Excess deductions for these carry over to the next year. And you have to answer yes to both questions about exclusive and regular use, not just one. The area of your home office must be used regularly and exclusively for business to deduct it.

Or you checked the box on 32b saying Some Investment is Not at Risk.

[PrimaryMark]

Thanks. As I mentioned in my OP, the only difference between the 2 years is the income. The time spent and square footage split between my 2 businesses is the same, so I'm baffled.

[PrimaryMark]

Thanks. Yes, 1 business shows a slight loss both years, where the other shows over $100k, so with all other values the same, I can't figure out why there's such a big difference.

[VolvoGirl]

Yes I got that.  You had more income in 2022.  For 2023 do you have enough Net Profit after expenses to use the whole amount?  Oh now you say for 2 businesses?  That complicates it.  

[RobertB4444]

Please clarify - what percentage of time do you have between the two businesses?  Any percentage of time for the home office on the business that shows a loss would make the home office non-deductible for that business.  Is it possible that you changed the percentage of time between the business from last year?

@PrimaryMark 

[PrimaryMark]

I don't think 2023 really has any bearing on the 2021 and 2022 entries (the software doesn't look forward). Again, the time spent on each business is the same 100% for each on both years, and the sq. ft. split is the same (the square footage is how I decided to split the two businesses). The small business that showed a slight loss of course washed out to $0 deduction for both years. The profitable business had virtually the same expenses year over year, certainly not enough difference to change the deduction by so much (we're talking expenses within $1000 difference between each year).

It looks to me like the tax deduction rules changed between these years, but I can't find any data to support that, so it just doesn't make sense.

There was a loss carryover for the business with the loss, but that isn't applied because there's no home office deduction, and is thus carried over to 2023, so again, that shouldn't change the deduction amount on the profitable business. 🙂

[ThomasM125]

Some of the main expenses that affect your home office deduction are mortgage interest (or rent), property taxes and property insurance. Also, repairs and maintenance. I suggest you compare your entries from year to year for these items.

[PrimaryMark]

ThomasM125, Thanks, yes, I'm aware of what the fields are for the Home Office deduction and as I've mentioned several times, the expenses are nearly identical for both years, not nearly different enough to explain the nearly halving of the deduction on the year where there was more income. Believe me, I have compared my entries year to year countless times now.

[AnnetteB6]

Since many people have unsuccessfully attempted to give you possible explanations for the difference you are seeing with your home office deduction, there is one more option we can try.  If you would be willing to share a diagnostic copy of each of the tax files you are comparing with the home office deduction, then we may be able to get to the root cause of the differences. 

The diagnostic file will not contain any personally identifiable information (it is redacted with xxx), only numbers related to your tax forms.  If you would like to provide us with the diagnostic files, follow the instructions below and post the token number along with which version of TurboTax you are using in a follow-up thread.  Since you are looking at two separate tax years, please also specify the tax year for the token number.

Use these steps if you are using TurboTax Online:

• Sign in to your account and be sure you are in your tax return.
• Select Tax Tools in the menu to the left.
• Select Tools.
• Select Share my file with agent.
• A pop-up message will appear, select OK to send the sanitized diagnostic copy to us.
• Post the token number here. 

If you are using a CD/downloaded version of TurboTax, use these steps:

• Select Online at the top of the screen.
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.

@PrimaryMark 

[PrimaryMark]

Thanks @AnnetteB - Just FYI, there's no such "Online" button or link at the top of the desktop app (Mac version) or in the menu bar. I did find the "Send Tax File to TurboTax Agent" menu option in the "Help" menu, so I Was able to export the diagnostics files.

2021 Token = 1166962 – Mac Download Home Business Application Version: 2021.r58.132

2022 Token = 1166963 – Mac Download Home Business Application Version: 2022.r58.087

Thanks a bunch for taking a look. Note that the business in question is listed as "Mail Order Business."

Cheers!

[AnnetteB6 · Accepted solution]

Thank you for providing your token numbers (and the instructions for how to send the tax file to an agent using a Mac).

I was able to take a look at both returns and compare Form 8829 for 2021 and 2022 to find the reason they are not more in line with one another.  Looking at your 2021 Form 8829, there is a carryover amount from your 2020 tax return that increases the 2021 home office expense by about $7000.  Look at your Form 2021 Form 8829 line 25 to see that amount.  This carryover inflated your 2021 home office expense and therefore made your 2022 home office expense look too low.  

Taking the carryover amount out of the equation, 2021 and 2022 home office expense only differed by about $600.  

@PrimaryMark 

[PrimaryMark]

Thanks so much for this AnnetteB6! I looked all over the app for that entry and couldn't (and still can't) find it, other than in the raw Form 8829.

I went all over the questionnaires over and over and could never find where that carryover was entered.

I really appreciate you taking the time to track this down for me!

Now I just have to figure out why my tax is so high - it's such a huge chunk of my income and without any mortgage interest to write off, I'm only taking the standard deduction, which doesn't help much. 🙂

Cheers and thanks again!