Yes, that's how it's supposed to work. Your home office deduction cannot cause you to have a business net loss. And you're speaking about 2 different things - AGI is your Adjusted Gross Income which considers all your joint income and any Adjustments to Income you are allowed. When you are speaking about your business income, it is either your Net Income or Net Loss.
You cannot have negative AGI, your income can only be reduced to 0. Your business, however, is allowed to report a loss as long as the loss is created by business activities only, your home office deduction does not count as a business activity. You are seeing the home office deduction move because since it cannot create a loss, it can only reduce your business Net Income to 0.
If your business has a Net Loss and you do not have enough AGI to support the entire loss, you are allowed a loss carryforward of the additional amount that can be used to offset income in future years and your tax return reports that loss carryforward for the consideration.
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