Question

Which of the following statements regarding limitations on the deductibility of home office expenses of self-employed taxpayers is correct?

A. Deductible home office expenses are miscellaneous itemized deductions subject to the 2 percent of AGI floor.
B. Deductible home office expenses are miscellaneous itemized deductions not subject to the 2 percent floor.
C. Deductible home office expenses are for AGI deductions limited to gross income from the business minus non home office related expenses.
D. Deductible home office expenses are for AGI deductions and may be deducted without limitation.

Answer 1

The correct answer is C, where deductible home office expenses for self-employed taxpayers are for AGI deductions limited by the income from the business after subtracting non home office related expenses.

Step-by-step explanation:

The correct statement regarding the limitations on the deductibility of home office expenses for self-employed taxpayers is C. Deductible home office expenses are for AGI deductions limited to gross income from the business minus non home office related expenses. This means that these expenses can reduce your taxable income, but they are only deductible to the extent of the income generated by the business activity after other expenses (that are not home office expenses) have been deducted. These expenses are not considered miscellaneous itemized deductions, and therefore, they are not subject to the 2 percent of adjusted gross income (AGI) floor. Moreover, while they are for AGI deductions, they cannot exceed the business income as stated; hence they are not without limitation.