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Qualifying for the Home Office Deduction

If you use a part of your home exclusively for business purposes, you might be eligible for the home office deduction. Available for homeowners and renters, this deduction is application to all types of homes.

home office tax deductionGenerally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. However, you may deduct expenses that are exclusively for business purposes.

The home office deduction is often misused, and, therefore, can result in IRS scrutiny. To correctly calculate the deduction, taxpayers may review the following facts shared by The Motley Fool:

“There are two methods that can be used to compute the deduction, and you can choose whichever you’d like.

“The simplified option allows for a standard deduction of $5 per square foot of the portion of the home used for business, with a maximum of 300 square feet. So, if you use a room that measures 15 feet by 12 feet as your office, or 180 square feet, you can deduct $900.

“Home office deduction = square footage x $5.00

“Or, the regular method of computing the deduction could be more beneficial, but requires more calculation and documentation. This involves calculating the actual expenses related to the business use of your home, as a portion of the total home. Examples of expenses may include, but are not limited to:

  • Mortgage interest and/or mortgage insurance
  • Rent
  • Homeowners insurance
  • Utilities
  • Pest control services
  • Repairs
  • Depreciation

To verify that you qualify for the home office deduction, check the following qualifying factors, as shared by The Motley Fool:

“Is your home office really a home office?
“In order to claim the home office deduction, there must be a room or other area in your house that is used for the sole purpose of conducting your business. The idea behind the home office deduction is that the space is not used as living space by you and your family, so if it is used for any other purpose than you doing work, it does not qualify.

“For example, if you have a computer cart in the corner of your dining room, you may not claim the space as a home office. Similarly, if you have your workstation set up in a room that doubles as a guest bedroom, it’s technically not a home office, even though it is used for that purpose most of the time.

“Principal place of business
“In addition to using the space exclusively for business purposes, the home office must be the principal place you conduct your business.

“Now, this doesn’t mean that you can’t also conduct your business somewhere else. In order to qualify as a principal place of business in the eyes of the IRS, the following two conditions need to be satisfied.

  • You use the space exclusively and regularly for administrative or management activities of your business.
  • There is no other fixed location where you conduct such activities.”

For more information on qualifying for or calculating the deduction, review the IRS publication 587 (2015), Business Use of Your Home.