Where is the "Gross income limitation" for home office deduction coming from?

[fssbob]

TurboTax is disallowing my home office deduction because, per the "Simplified Method Worksheet", it claims I have a "Gross income limitation" of -3,628. I have no idea where this number is coming from.  All other calculations in TurboTax show substantial income after expenses.

[AnnetteB6]

Please take a look at your entries in the Home Office section of your return and verify that you have entered a number on the screen titled Business conducted in home office.  It is asking for the percentage of time you spend conducting business in your home office.  If this field is left blank, then the program assumes that no business is conducted in the home office and the deduction is disallowed.  This number is used to calculate the gross income limitation that is shown as a negative number in your case.

If the number entered on that page is less than 100%, then the calculation could take your profit to a negative number when using the simplified home office calculation.  If this happens, then the deduction is disallowed.

Here are the details about how the Simplified Home Office deduction works, and what could be causing the situation in your return.

For any home office deduction (actual expenses or simplified), the home office deduction is not allowed to take a Schedule C bottom line from a positive profit to a loss.  Therefore, before the home office deduction is calculated, the tentative profit or loss of the business is considered.  If the number is a loss, then no simplified home office deduction is allowed.  However, even with a loss, an actual expense home office deduction can be calculated and carried over to the next year.  Carryover is only possible when using the actual expenses, not the simplified method.  

The profit/loss number that is used to decide whether the home office expense is allowed comes from Schedule C line 7 minus Schedule C line 28.  If the result is positive, then that is the first step to get the simplified home office deduction.  

However, the Business Conducted in the Home Office comes into play too.  If that number is not entered, then it is assumed to be zero.  Zero times the income on Schedule C line 7 minus Schedule C line 28 gives a negative number, which means no home office deduction in the current year (carryover if using actual expense method).  

If the Business Conducted in the Home Office percentage is any number less than 100%, then the amount on Schedule C line 7 is adjusted by that percentage before the expenses are subtracted.  So even with what you expect to be a positive profit situation, the percentage of business conducted in the home office can drop the income to a level where the profit is negative instead of positive.  This means that the simplified home office method is not allowed.  Again, using the actual expense method can work, but the home office expense is carried over to a future year.  

[fssbob]

My Schedule C line 7 minus Schedule C line 28 is heavily positive. In the Home Office dialog, I'm not asked for percentage of time you spend conducting business in your home office. I AM asked "how many months did [my name] use this office at least 15 days of the month", to which I responded all 12 months.

Is the percentage of time you spend conducting business in your home office somewhere else? If so, where?

Thanks.

[fssbob]

I just realized--the problem is that Turbo Tax is ignoring my Line 7 on Schedule C--gross income--and treating it as zero. That's why it's showing -3,628, which are my Total expenses (Line 28). So the question is why is it doing this?

[fssbob]

Still need help on this. Based on everything I can see, TurboTax is erroneously ignoring my Schedule C Line 7, and thus not allowing me to take the Home Office deduction.

[DianeW777]

The home office deduction is limited to the net profit on your Schedule C. If there is any mortgage interest or real estate taxes they can be used in full on Schedule A, if you can itemize your deductions. TurboTax will calculate this for you.

You cannot claim more than the tentative profit  of your business in a tax year. For instance, if your tentative profit is $100, then you cannot deduct $200 as home office expense. So, your business income can have a deduction limit. The home office deduction that is unused will carryover to the following year until you can use it. It start with Schedule C, line 29, tentative profit. These forms will give you an overview.  

• Form 8829, Expenses for Business Use of your Home
• Schedule C

@fssbob 

@rbspies 

[fssbob]

None of this applies in my case. Schedule C Line 29 shows a big tentative profit.  Form 8829, Line A ignores that tentative profit and shows a "Gross income limitation" of -3628, which reflects ONLY my business expenses--as if I had no income / no tentative profit.

[AnnetteB6]

As you go through the Home Office section of your Schedule C, you should several questions, first to qualify that you can claim a home office, then the details about the home office, and then the actual expenses related to the home office.  It is the details about the home office that is probably causing the issue with your return.  Look for the following questions, each on a separate input screen:

• When did you start using this home office?
• Do you use space in this home to store inventory or product samples?
• How big is this home office?
• Business conducted in home office
• How did you enter home office expenses for 2023?

The question on the page titled Business conducted in home office is the key to the simplified office expense calculation.  If you have not entered a value on that page, or if you do not see that page as you go through the Home Office section, then you will not be able to use the simplified method because your business will not show a profit even if there is one.

Please revisit the Home Office section of your return and look for the Business conducted in home office page.  If this page simply does not come up for you, but all of the others shown above did, please respond with which version of TurboTax you are using (online, desktop, Mac and Deluxe, Premier, Home and Business) so that we may investigate this further.

@fssbob 

@rbspies 

[fssbob]

There was never a page titled "Business conducted in home office".

I'm using TurboTax Mac desktop Deluxe.

Here's how the entire home office dialog went:

• Let's give this home office a name: [Gave it a name]
• Tell us more: I owned the home. I do all this business from home
• How big is this home office? 100 sq ft out of Entire Home 1,080 sq ft
• When did I start using this home office: 09/10/2013
• In 2024, how many months did I use this office at least 15 days of the month: 12
• How did I enter home office expenses for 2023: I took the simplified deduction
• How do you want to enter your home office expenses for 2024? - I'll take the simplified deduction
• Did you have any home office expenses not deducted in a prior year? No

And then: "It turns out you aren't getting the home office deduction. That's because the net profit for your business was zero or less."

Thanks for your detailed follow-up on this.

[LeticiaF1]

There are some questions before you get to the ones you mention that are very important when calculating your home office deduction.  That asks about the use of your home.  

For a home office to be deductible, it must be used exclusively and regularly for business.  This means that you do only your work in your home office, you can’t use the same area for another job or other activities.  Also means that the part of your home used as an office must be used on a continuing basis.  If used only occasionally or incidentally for business, it doesn't meet the test, even if the area isn't used for any other purpose. 

 If you work at a place outside your home, but also use your home a lot and often to do business, it may still be a main workplace.

Go back and check all the questions about the business use of home expenses. Make sure you correctly answer all the questions about how the home is used.  

Regarding the income limit, the amount that is considered when calculating your business use of home deduction, is your net profit (gross income - expenses) not your gross income. When you get back into your business section, there's a summary that shows what your income minus expenses is. This summary shows your gross income and expenses, and what your taxable income is.  If your taxable income is 0 or less, you can't claim the deduction for using your home for business.   

@fssbob 

[fssbob]

I suspect the screen images you're including are from the online version. The desktop version mostly covers similar territory, but differently.

I do get asked to name the home office.

I don't get asked "Was this home office used for work only and nothing else?"

I don't get asked "Did you regularly use this home office". But instead, as I indicated, I do get asked how many months I used the office for at least 15 days of the month.

I don't get asked "Was this home office the primary place where you work?" But, as I indicated, I do check a box for "[My Name] does ALL this business from home".

I don't get asked "What percentage of your work...was done at this home office. But that's academic, because, as I indicated, I've already checked a box saying I do ALL my business from home.

On Schedule C, Line 29 is heavily positive. Line 30 shows the square footage for office and home, but the dollar amount is blank, presumably because TurboTax isn't allowing the deduction.

This is really starting to look like a bug in TurboTax.

[VolvoGirl]

For Home Office you have to answer yes to both questions about exclusive and regular use, not just one.  The area of your home office must be used regularly and exclusively for business to deduct it.

Or you checked the box on 32b saying Some Investment is not at risk.

[fssbob]

The questions were not in the form you're assuming.

There was one that asked "[Name] does all this business from home", and I checked the box.

There was a second that asked "In 2024, how many months did [Name] use this office at least 15 days of the month?" and I selected "12".

There were no other questions about exclusive and regular use.

[KeshaH]

If you'd like, we can look at your return and see exactly what you see to  help come to a resolution. The return will be scrubbed and won't include any of your personal details.

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all the states, if any, that are included on the return.