Can't deduct Trader status home office from California state tax

[daisy20222023]

I followed this to file my trader status https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/report-trader-activity-without-se...

But not sure if anybody noticed: California Adjusted Gross Income will take Federal Adjusted Gross Income and add trader status home office expense. California doesn't allow home office deduction when no business revenue or do we need to make adjustment somewhere (put a negative number of the home office expense on state total business income adjustment) to fix it? Would it mess up anything else?

[MonikaK1 · Accepted solution]

Neither Federal nor California law allows home office expenses to create or increase a net loss on Schedule C.

The help article you referenced includes instructions to manually adjust income on a trader's Home Office Form 8829 to show a gain:

If you want to claim a home office deduction on your Schedule C, you must make a manual adjustment to show a business gain for the year.

1. Select Forms and go to Form 8829.
2. On Form 8829, Part II, Line 8 Calculation Smart Worksheet line C2 Adjustments to calculated gain, enter the income from trading activities, either from Line 18b on Form 4797 or the calculation you made from Schedule D.

According to California Publication 984, Business Expenses, California allows a Home Office Deduction based on the percentage of the home that is used “exclusively and regularly” for business purposes and meets one of three IRS qualifications, same as federal.

Review your California Schedule C for adjustments to other types of expenses that can differ for California, such as Depreciation, that cause your California Schedule C to have a different net profit/loss than your Federal Schedule C.

Since TurboTax allows for a manual adjustment to Federal Schedule C expenses for the home office on Form 8829, you should be able to adjust California expenses for this as well, as long as you don't create or increase a net loss with the home office expense.

"Other California Adjustments to Income" says "Enter any adjustments to your federal amounts below. If California doesn't allow as much of a deduction as in your federal return, enter it as a "Subtraction". If California allows a bigger deduction than your federal amount, enter that amount as an "Addition".

See this TurboTax tips article for more information about home office expenses.