Ashley runs a business out of her rental apartment.She uses part of her home exclusively and regularly for this business, her only office space.The office occupies 400 of the 1,600 square feet in her apartment.She earned $3,200 for the year from this business.Her expenses for the entire apartment were $12,000 for rent and $2,200 for utilities.How much is the maximum she can deduct this year for her home office expenses?

Question

Quizplus · Accepted Answer

Ashley can deduct expenses based on the percentage of her apartment used for the business. This is 400 sq ft / 1600 sq ft = 25%. Her total expenses are $12,000 (rent) + $2,200 (utilities) = $14,200. 25% of $14,200 is $3,550. However, the deduction cannot exceed the gross income from the business, which is $3,200, making it the maximum she can deduct.

Ashley Runs a Business Out of Her Rental Apartment