Reference no: EM132674537

Problem - Kathy is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kathy has $3,000 of net income. Her allocable home office expenses are $5,000 in total (includes $2,000 of allocated interest and property taxes). How are the home office expenses treated on her current year tax return?

a. All home office expenses may be deducted, resulting in a business loss of $2,000.

b. Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. None of the extra $2,000 of home office expenses may be carried forward or deducted.

c. Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. The extra $2,000 of home office expenses may be carried forward and deducted in a future year against home office income.

d. None of the home office expenses may be deducted since Kathy's income is too low.