Taxpayer jointly owns home w/ a non-spouse. Office space is used exclusively by taxpayer. For total area, should the remaining part of the home square footage be divided by 50% and then add the office space square footage? Dividing any utilities in 1/2 assuming that is how they paid.
Is there a better way to determine percentage of office space versus the one proposed above? They are an unmarried couple. Perhaps just treat it as you would for a married couple?
If the tax savings from all that work, compared to the tax savings from just using the simplified method, is more than the amount of your fees for pro-rating itemized deductions and recapturing depreciation when they sell -- you're probably doing something wrong.
"Drama" is right. OIH is an emotional issue. A man's home is not only his castle, it's his tax loophole. Or at least he thinks of it that way. "You'll have to pry this complicated Schedule C computation from my cold, dead hands."
"Kicks" is right, too. It's fun to watch the practitioners who still think there is a little man with a green eyeshade at IRS, attaching red flags to every return that indicates an OIH deduction.
I admit, though, that the simplified method may result in substantially lower deductions in areas with higher costs to buy and maintain a home, than where I live. And Congress has discouraged its use by moving more people to standard deduction, so their mortgage interest and property taxes are worthless on Schedule A. (Nor does the SALT limit help.) My ideal OIH client would rent a small 2-BR in a place like NYC and pay $3,000 a month for it. 15% of square footage times rent, utilities, insurance and how about holiday tips to the doorman?
So, using the simplified method: Since they co-own, the total sq footage for them would be 50% of the remaining space plus the exclusive office space square footage?
p.s., I know I am beating a dead horse/nit-picky, here, but am curious to follow the logic....
"So, using the simplified method:"
You are making it Hard.
It's called Simplified because it isn't Hard.
"Level Up" is a gaming function, not a real life function.
For total area, should the remaining part of the home square footage be divided by 50%
Assuming the taxpayer uses the entire home, you would use the square footage of the entire home.
As you mentioned, you enter the expenses that were actually paid by the taxpayer. You mentioned they paid 50% of the utilities, but that would apply to whatever percentage of the mortgage interest, real estate taxes, etc. that they pay for. And you likely would only enter 50% of the Basis for depreciation.