Venue change won't affect carryover rules

What happens to carry-over home office losses when the house associated with the loss is sold and the business is moved to another home? Do the losses carry over to the next home, or are they lost forever? If there is a loss on the sale of the home, is there a related business property loss that can be deducted? J.B via e-mail.

The fact that you change the location of your business does not affect the carry-over rules for unused home office expenses. Certain home office expenses may not be deducted if the result of that deduction is a loss for your home-based business. Those expenses carry over to future years until such time as there is enough income in your business to offset the losses.  

Selling your home doesn't change these carryover rules, so your deduction is safe for future years.  

If you sold your home at a loss, you are allowed to take a deduction for a prorated portion of the loss on the house. This deduction is reported as a loss on the sale of a business asset, and you will use Form 4797, Sales of Business Property, to reflect the loss.  

The loss on the sale of the house will affect your calculation of deductible home office expenses in the year of the sale, but it will not negate the fact that you can still carry unused losses over to future tax returns.  

I pay health insurance through my job and a co-worker told me I am not able to take a deduction for the insurance cost. I've deducted this for years. Who's right? K.I. via e-mail.

Premiums for health insurance that are withheld from your paycheck are usually deducted from your wages before income tax is computed on the wages. Therefore, in effect, you've already gotten the benefit of the deduction because no tax was withheld on the money used to pay for the health insurance.  

If you're not sure if your employer takes the health insurance expense out of your pay before computing tax, ask the person who takes care of payroll at your company. Usually you can tell by looking at your pay stub or your W-2 form. If there is a difference between your total wages and the wages used to compute Social Security tax, this difference is probably made up of health insurance premiums and/or deductions for contributions to a retirement plan.  

Chances are good that your co-worker is right. Sorry!  

Is there a 10% penalty for an early withdrawal from a 401(k) plan for a first-time homebuyer? N.B. via e-mail.

There is a provision in the structure of 401(k) retirement plans for early withdrawals of amounts for certain financial hardships, including certain expenses to purchase a principal residence. In order to take the money out of your 401(k) plan for this type of expenditure, you must first exhaust all avenues for making a nontaxable loan from the plan.  

There is no waiver of the 10% early withdrawal penalty when you take money from your 401(k) plan for purchasing a principal residence. The penalty waiver you describe applies to traditional IRA plans which allow first-time homeowners to take out up to $10,000, penalty-free, if the money is applied to the purchase or building of a house.