Home Office Expenses
The home office expense deduction is complicated. The IRS has a 32-page book (Publication 587) that discusses this subject. This article presents a brief overview of the subject. If you have a home-based business, check with your tax advisor about the home business deduction and use of the new alternate simplified home office deduction.
You may deduct expenses of a home office is you use your home "regularly and exclusively" for the following purposes:
- as your principal place of business
- as a place to meet patients, clients, or customers "in the normal course of your trade or business."
Options for Calculating Home Office Deduction
As of 2013 business taxes, the IRS has two options for calculating your home office expense.
- You can use the method described in detail below, using Form 8829, or
- You can use the new simplified home office deduction calculation.
Simplified Home Office Deduction
The new optional deduction is for smaller home offices. The simple deduction is to multiply the home office space (up to 300 square feet) by $5 a square foot. The maximum deduction is $1,500. Smaller home offices will provide a smaller deduction.
Detailed Home Office Deduction CalculationUse Form 8829 to calculate your home office deduction for a larger option . The calculation asks you to determine the percentage of the total area of your home that is used for business purposes and the total hours the business area is available for use during the year. Then you must use this percentage to determine the allowable amount of deduction for these expenses:
- casualty losses (with limits
- mortgage interest
- real estate taxes
- homeowner's insurance
- and home depreciation
If you are self-employed, you can then report this deduction on Line 30 of your Schedule C on your 1040.
Back to Taxes and Your Home Business
This article presents general information; I am not a tax attorney or tax preparation specialist. Refer to IRS publications and refer questions to your tax consultant.