Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business. Fran runs her tax practice out of a 150 square foot office in her home where she meets clients and works on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office. The allocable portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran?
A) $0.
B) $2,500.
C) $3,500.
D) $4,500.
E) None of the above.

Question

Quizplus · Accepted Answer

Fran's total income from the tax practice is $7,500, and her business expenses are $1,000. After deducting the $1,000 from the income, she has $6,500 left. The allocable mortgage interest and real estate taxes of $4,000 are fully deductible, leaving $2,500 of income to cover maintenance, utilities, and depreciation. Therefore, $2,500 of the $4,500 is deductible.

Fran Is a CPA Who Has a Small Tax Practice