One question that I often get asked is how much can I deduct for my home office. My aim with this article is to help you understand the rules and how they may apply in your situation. Here we go!
If you use part of your home for business, you may be able to take advantage of the home office deduction.
The home office deduction is available to both homeowners and renters and applies to all types of homes. There are two methods of calculating the home office deduction.
For tax years starting on or after January 1, 2013, taxpayers can now use the simplified option in calculating the home office deduction. This option reduces the record keeping burden by allowing the taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.
For tax years 2012 and prior, the regular method is required to calculate the home office deduction. Taxpayers must determine the actual expenses of their home office. These expenses may include mortgage interest, real estate taxes, insurance, utilities, repairs, and depreciation. Generally, deductions are based on the percentage of your home devoted to business use.
Requirements to Claim the Deduction
Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:
Regular and Exclusive Use
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
Principal Place of Your Business
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. If you use a whole room or part of a room to conduct business, you need to determine the percentage of your home devoted to business use.
Additional Tests for Employee Use
If you are an employee and you use part of your home for business, you may qualify for a home office deduction. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employers, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee.
Talk these points over when you meet with your accountant this year. This is a nice deduction that can definitely help soften your next tax bill.
If you have any questions, let me know.
Hazel Ho, CPA, is a tax manager at Milam, Knecht & Warner, LLP. Her professional background includes experience at the international CPA firm of Ernst & Young LLP. Outside of work, Hazel enjoys spending her time practicing yoga, zumba, snowboarding, and laughing with her little girl.