Next, he figures his allowable depreciation deduction for the business use of his home in Part III of Form 8829. The adjusted basis of his home is $130,000, which is less than the fair market value of $160,000. He figures the value of the land to be $20,000. He subtracts the land value from the adjusted basis. He multiplies the result ($110,000) by the percentage on line 7 to get the depreciable basis of the business part of his home ($11,000).
He began using the office in January of this year, so he uses the MACRS Percentage Table for 39-Year Nonresidential Real Property or Table A-7a in Appendix A of Publication 946. The depreciation percentage for the first year of the recovery period for assets placed in service in the first month is 2.461%. His depreciation deduction for 2003 (line 40) is $271 (.02461 × $11,000). He enters that amount in Part II on lines 28 and 30. This is less than the available balance of his deduction limit (line 26), so he can deduct the full amount as depreciation. John also must complete Form 4562 for 2003, so he enters $271 on line 19i, column (g). See Form 4562.
Form 4562 Example
Form 4562, Part I, lines 1-13
Form 4562, Part III, line 19c
Form 4562, Part III, line 19i
Form 4562, Part IV, line 22
Schedule C Example
Schedule C, Line 13
Schedule C, Line 16b
Schedule C, Line 25
Schedule C, Lines 28-30
Form 8829 Example
Form 8829, Part II, Step 1
Form 8829, Part II, Step 2
Form 8829, Part II, Step 3
Form 8829, Part II, Step 4
Information courtesy of the Internal Revenue Service.
