If you work, whether you are an employee or self-employed, you may be able to deduct certain home expenses from your federal income tax. Read on to learn more about determining if you qualify to take advantage of a home office deduction.
Use of Home for Business
When determining what home expenses you can deduct for business use, the first hurdle the IRS looks for is that you actually use a portion of your home for your business. To qualify for a home office deduction, you must use your home for one or more of the following:
- As the primary place where you carry out your business or trade on a regular or exclusive basis
- As the place where you meet clients, customers, or patients on a regular or exclusive basis in the normal course of conducting your business
- With a separate structure not attached to your home but used to carry out your business or trade on a regular or exclusive basis
- As a storage facility for your business on a regular basis
- For rental purposes
- As a daycare
When considering the exclusive basis requirement, you must remember that any portion of your home that you use for personal use and business use will not qualify for a home office deduction. For example, if you perform work activities in your living room and likewise spend your evenings in that room watching television with your family, the expenses associated with the room cannot be used in calculating a deduction for business use.
Expenses Deductible for Business Use
Once you determine that a portion of your business use of your home qualifies you for a deduction, there is then the question of what expenses you may deduct. Typically, you can deduct a portion of the following expenses: casualty loss, depreciation, insurance, maintenance, mortgage interest, real estate taxes, rent, repairs, and utilities.
For most business use deductions, the fraction of the above expenses you can deduct is the percent of your home’s square footage that pertains to business use. For a daycare, you must also determine the percent of a given day that your home is used for your business.
Beginning in 2013, the IRS began to allow taxpayers to use a simplified calculation of business use deduction. The simplified calculation is $5 per square foot of your home used for business purposes, up to a maximum of 300 square feet.
Limitations on Business Use Deduction
Whether using the traditional or simplified approach for calculating a home office deduction, the amount of your home office deduction is limited in a given tax year to the gross income of the business. In the event your home office deduction exceeds the gross income of your business, you may carry forward the additional monies if you used the traditional calculation method only.
A taxpayer may alternate between the traditional and simplified method of calculating a business use deduction every tax year, choosing the method that offers the taxpayer the greatest tax benefit.
Who can help me with additional questions about my home office deductions?
A tax attorney is the best person to answer your questions about home office deductions and how you can take advantage of them on your tax return. Only a tax attorney can provide you tax advice and offer the protection of attorney-client privilege.
When you are ready to get help from a tax attorney, you can call the number at the top of this web site or complete the form below. The first conversation with a tax attorney is free of charge, so take the first step to getting help today.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.