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Guide for Completing Form 8823 - page 44 / 197





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operate sole-proprietorship businesses or otherwise report income on Schedule C, regardless of whether the taxpayer is reporting a profit or a loss. If the person is not eligible to get an SSN, which is needed to file a tax return, an individual taxpayer identification number (ITIN) can be obtained using IRS Form W-7.*

Example 2: Using the Prior Year Tax Return

A potential LIHC tenant is self-employed and expects the business to continue indefinitely. The potential tenant submitted the tax return for the last year. The net income from the sole proprietor ship was $13,000. The $13,000 figure can be used as income anticipated for the next 12 months.

Alternatively, the potential tenant can annualize income from self-employment for the current year business activity based on the number of full months in business. The formula is:

(Net Income Year to Date) x 12 months Number of Months in Business during the Current Year

Example 3: Annualized Current Year Self-Employment Income

In September, a potential tenant prepared a Schedule C showing the income and expenses for the current year, from January 1 through August 31, using the tax form from the prior year. To date, the potential tenant has net income of $24,000. The anticipated income is determined by multiplying $24,000 by 12/8, which equals $36,000. This is an acceptable estimate of future earnings.

*Office in the Home

A low-income tenant may use a portion of a low-income unit exclusively and on a regular basis as a principle place of business, and claim the associated expenses as tax deductions, as long as the unit is the tenant’s primary residence. If the tenant is providing daycare services, the tenant must have applied for (and not have been rejected), be granted (and still have in effect), or be exempt from having a license, certification, registration, or approval as a daycare facility or home under state law. For more information, refer to Form 8829, Expenses for Business Use of Your Home, the form’s instructions, and Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Example 4: Use of Residential Rental Unit as Home Office

A self-employed bookkeeper wishes to rent a two bedroom unit and intends to use one bedroom as her principle place of business; i.e., to provide bookkeeping services. She provides her tax return for the last year, which includes a Schedule C, as verification of her income. The Schedule C includes an “office expense” for her home office in a prior residence. There’s also a Form 8829 included with the return.*


Revised October 2009

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