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Scenario $2$: Home Office Deduction & Business Use of Home

Sole Proprietorship Business Income: $$80,000$

Qualifies for the home office deduction. Home office is $400$ sq$.$ ft in a $2,000$ sq$.$ ft house.

Eligible home$-$related expenses:

Mortgage Interest: $$8,000$

Property Taxes: $$5,200$

Utilities: $$3,000$

Homeowner's insurance: $$1,500$

Depreciation on the home: $$4,000$

Interest Income: $$800$

Itemized Deductions $($includes non$-$home$-$office portion of above expenses$)$: $$25,000$

Allowable deduction for self$-$employment tax: $$6,500$

Calculate:

The home office deduction.

AGI, Taxable Income, and Total Tax Liability