Can I Claim a Tax Deduction For My Home Office?

If you are using part of your home to run your business, you may be able to deduct expenses for the business portion of your home.  This tax deduction is available for both homeowners and renters.  Here are the requirements:

Exclusive Use
You must use a specific area of your home only for business.  It can be one or more rooms, or just part of a room.  There are special rules for daycare facilities.

Regular Use
Incidental or occasional business use will not qualify as a home office.

Trade or Business Use
Hobby use or investment activity use (for someone who is neither a broker nor dealer) will not qualify as a home office

Principal Place of Business
The home office must be your principal place of business.  Consider the relative importance of the activities performed at each place where you conduct business, and the amount of time spent at each place where you conduct business.  Your home office will qualify as your principal place of business if you use it for administrative or management activities of your business and you have no other fixed location where you conduct the administrative or management activities.

Also, the space may qualify as your principal place of business if it is used by your patients, clients, or customers to meet with you in the normal course of your business, or the space is in a separate structure not attached to your home.

Calculating the tax deduction:  You will need to know how many square feet you use for business and the number of square feet in the entire home.  Then you can calculate the business percentage to apply to your home expenses, which will include rent or mortgage interest, property taxes, insurance, repairs & maintenance, homeowner association dues, housekeepers, and other items.  Also, if you are a homeowner, the cost or value of the business portion of the house will be depreciated over 31.5 years.

Instead of the exact method, you can deduct a flat amount of $5 per square foot, with a limit of $1,500.  Usually, the exact method produces a higher tax deduction.

If you have questions / comments or would like to enlist the tax services of an experienced CPA tax accountant, please contact me.

M. Bess Kane, CPA
bess@besskanecpa.com
November, 2019