Michael graduates from New York University and on February 1st of the current year, accepts a position with a public accounting firm in Chicago. Michael is a resident of New York. In March, Michael travels to Chicago to locate a house and starts to work in June. He incurs the following expenses, none of which are reimbursed by the public accounting firm.
| Item |
Amount
|
|
Automobile expense en route (1,000 miles at 16.5 cents per mile - standard mileage rate)
|
$ 165
|
|
Cost of meals en route
|
100
|
|
Househunting trip travel expenses
|
1,400
|
|
Moving van expenses
|
3,970
|
|
Commission on the sale of Michael's New York condominium
|
3,500
|
|
Points paid to acquire a mortgage on Michael's new residence in Chicago
|
1,000
|
|
Temporary living expenses for on week in Chicago (hotel and $100 in meals)
|
400
|
|
Expenses incurred in decorating the new residence
|
500
|
|
Total expenses
|
$ 11,035
|
Required:
a. What is Michael's moving expense deduction?
b. How are the deductible expenses classified on Michael's tax return?
c. How would your answer to Part a change if all of Michael's expenses were reimbursed by his employer and he received a check for $11,035.
2. Darrell is a self-employed consultant who uses 15% of his home exclusively as an office. Darrell operates completely out of his home office and makes all of his appointments from the office as well as keeping his books and records in the office. Darrell's gross income from his consulting business is $60,000 in the current year. He incurs $6,000 of expenses that are directly related to his business, such as computer and office supplies. Below are expenses that relate to Darrell's residence for the current year:
|
Item
|
Amount
|
|
Real estate taxes
|
$ 4,000
|
|
Mortgage interest
|
8,000
|
|
Insurance
|
1,000
|
|
Depreciation
|
4,000
|
|
Repairs and utilities
|
1,000
|
|
Total
|
$ 18,000
|
Required:
a. Which of the above expenditures (if any) are deductible? Are they for AGI or from AGI deductions?
b. How would your answer change if Darrell was an employee of a consulting company and maintained an office at home in order to take work home with him so he did not have to spend so many hours at his consulting company office?