Discussion:Allowed or allowable after miscalculation and 2% haircut??

Here's a head-scratcher. A salesman/employee has a home office. It satisfies all the criteria to be deductible. But in computing depreciation on the office portion of his home the taxpayer miscalculates and slightly understates the Section 167 deduction on his Form 4562 and carries the mistake over to his Form 2106 and then to his Schedule A. But the deduction for his Miscellaneous Itemized Deductions is subject to the 2%-of-AGI haircut and he ends up deducting even less than what he calculated as his depreciation.

Let's put up some numbers. His [mis]calculated depreciation was $145 but it should have been $160, and his actual deduction for Miscellaneous Itemized Deductions ended up being only $95, after his 2% screwing.

Here's the question: How much was his "allowed or allowable" depreciation for the year?

Don't know off the top of my head but here's a thought.

14 views to this point and no one has told you to amend???

You know, this is material stuff we are talking about. (lol)

This forum has come a LONG way. (lol)

 As my tax prof was reputed to have said, "Just add zeroes until it starts to get your attention."  These dollar amounts are merely illustrative and their materiality or lack thereof may be ignored at the reader's discretion. 

This forum has come a LONG way. (lol)

 And the farther it comes, the farther it has yet to go!  The kitchen is right close here.  Time for a PBR?

"If you are not required to include all of your recoveries in your income, and you have both a state income tax refund and other itemized deduction recoveries, you must allocate the taxable recoveries between the state income tax refund you report on Form 1040, line 10 (Form 1040NR, line 11), and the amount you report as other income on Form 1040, line 21 (Form 1040NR, line 21). If you do not use Worksheet 2, make the allocation as follows. Divide your state income tax refund by the total of all your itemized deduction recoveries.

Multiply the amount of taxable recoveries by the percentage in (1). This is the amount you report as a state income tax refund.

Subtract the result in (2) above from the amount of taxable recoveries. This is the amount you report as other income."

Before you open your PBR and chuckle, I have three clients who are trainers of MLB teams. They pay horrendous union dues and assessments, but every 4-5 years are refunded a good percentage of the assessments. I spoke to an IRS specialist in Washington ten years ago when I did my first one [in addition, with these guys you must see how much of the deduction was lost to AMT] and his suggestion was to recalculate the original return without the deduction and come up with the tax benefit that way.

[Parenthetically, as an aside, the resources that IRS has pissed away in deciding how to (and then in explaining how to) divide a "tax benefit recovery" of two items between two different lines on page one of Form 1040 - if, indeed, that's what they've explained here - is appalling. I'm appalled. Also, have you seen how much time and effort they put into explaining how to compute the part of a state tax overpayment/recovery that is a taxable benefit when the overpayment/recovery comes from *more than one* tax year? Un-eff-ing-believable!]

But back to the question: I'm thinking that the depreciation allowed or allowable on this taxpayer's home office is either the greater or the lesser of two or maybe three different arithmetic combinations of $145, $160, and $95. I mean, what *other* numbers do we have to work with? This should be child's play for any experienced tax professional with a PBR in his hand...

Maybe we should have a multiple choice, show-your-work, pop quiz. And a prize, like maybe 400 empty Pabst cans. Ya thinking more people would be trying the quizzer if there was a prize?

And what do you mean "give back" the depreciation? There's (1) basis reduction, and there's (2) unrecaptured Section 1250 gain, and there's (3) "non-excludible-gain-from-depreciation" under the Section 121 rules. Do you want an answer for *each* one? Or will some mushy "subject to recapture" satisfy you? Refrigpbrerator, f'sure.