Should I Take the Home Office Deduction?

Should I Take the Home Office Deduction?

A portion of personal expenses of your home is deductible as a business expense if the home office is used regularly and exclusively as the principal place of business, a place to meet or deal with clients or customers, or as a separate structure used in the business.

The IRS is adamant about exclusive use. Family members should not use the home office for watching television, working on the office computer, or even playing in the office. In one case, the IRS disallowed the deduction for a mother working at home with her child who napped in a porta-crib in the office while she was working.

For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business.

You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.

The deduction includes both direct costs (e.g., painting a home office) and indirect costs (e.g., the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence).

The IRS has also created a simplified “safe harbor” deduction for home offices. Instead of deducting a portion of expenses and depreciation related to the office, taxpayers can now deduct $5 per square foot, up to 300 square feet (i.e., a maximum of $1,500), each year for the home office deduction.

The IRS provides a lengthy explanation of the home office deduction. Click Here