Home Office Deduction

If there is a section of your home that is used for business, you may qualify for the home office deduction. The home office deduction is available whether you rent or own your home.

Requirements

In order to be able to claim the home office deduction you must fulfill these two basic requirements:

  1. Regular and Exclusive Use –

You must use a section of the dwelling unit exclusively and regularly for business. A dwelling unit includes a house, apartment, condominium, mobile home, boat or similar property.

  1. Principal Place of Business –

You must conduct substantial business activity at your home office in order for the space to qualify. If business activities are performed at various locations, the taxpayer must then consider the relative importance of the activities performed at each business location and the time spent at each.

The Deduction

To determine the deduction, a taxpayer can use either of two methods, the regular method or the simplified method.

The Regular Method

The regular method or the actual expenses method includes direct and indirect costs related to the home. Direct expenses include: furniture, repairs and maintenance of the space, etc. Indirect expenses are expenses for the entire home such as: utilities, real estate taxes, mortgage interest, insurance, HOA fees, security, depreciation, etc. Indirect expenses must be allocated to the home office based on the ratio of its square footage in relation to the entire home.

The Simplified Method

The simplified or safe-harbor method allows a $5 per square foot deduction, with a maximum of $1,500 (300 square feet). If using this method, a taxpayer is not required to substantiate expenses for the home and allocation calculations would not be necessary.