Answer:
a) $7,400
b)$60,000
Explanation:
First, we need to complete the question
a) What is Rita's home office deduction for the current year?
b) What is Rita's AGI for the year?
Solution
a) Rita's Home Office Deduction for the Current Year
Description Amount ($)
Gross Income 13,000
Subtract: Her Business Expenses (5,600)
The balance 7,400
Subtract: Expenses under 1st Tier (6,700)
(Interest 5,100 + taxes 1,600)
Balance 700
Subtract: Expenses unde 2nd Tier (700)
($800 Operating Expernses before limit)
Balance 0
Subtract: Expenses under 3rd Tier (0)
1,600 Depreciation before limit
<u>Net income from Rita's Business 0</u>
The Deduction allowed Rita is $7,400 a totla of the home office expenses and the home operating expenses
Note that there was no expense subtracted for the Tier 3 expenses this is because Rita's income had reduced to $0 and there was nothing to subtract from
B) What is Rita's AGI for the year?
The AGI is the Rita's reported AGI of $60,000 + $0 which is the net calculated income from her business. So her AGI remains $60,000.
