The IRS has allowed a deduction for qualified taxpayers allowing them to deduct some specific home expenses on their taxes. However, to claim a deduction for the home office, part of the home must be used regularly and exclusively for their business. They may also claim a separate structure on their property as long as it provides the primary space for their business.
How to Determine if You can Claim Your Home Office on Your Taxes
Homeowners and renters can both claim the home office deduction. However, an employee is not eligible for the deduction. Taxpayers also have specific expenses that can be deducted like rent, mortgage interest, utilities, maintenance, repairs, insurance, and depreciation. To claim their home expenses as deductions, a taxpayer must meet certain requirements. For instance, the term, “home” can have a variety of meanings including:
- House, condominium, apartment, boat, mobile home, or a similar type of property
- Home may also be used for a structure on the taxpayer’s property like a studio, garage, greenhouse, or barn.
- The deduction cannot be used to claim parts of the property used solely as a motel, hotel, inn, or other similar business.
In general, two things are required for a home to qualify as a deduction. These include:
- A portion of the home or property must be used exclusively and regularly for conducting business.
- The home must also be the primary location of the taxpayer’s business. The home meets the requirement if there is no other location for the taxpayer to conduct management and administrative activities. So, even though a business owner conducts business outside of their home, their home qualifies if they use their home for conducting business activities.
Deductions for Home-Related Expenses
Taxpayers who operate a small business out of a separate structure that’s not attached to their home may qualify for home-related expenses deductions too. They must use the structure for their business exclusively and regularly. There are two ways to calculate home office expenses deduction. The simplest way is to calculate $5 per square foot of the home used solely for their business. There is a maximum of 300 square feet applied to this option. This makes $1,500 the maximum home office expense deduction allowed.
The standard way to calculate home-related expenses is based on what percentage of the home is used to conduct business. If a taxpayer uses a single whole room or part of a room to conduct their business, they need to determine the percentage the area is of the home. The percentage is then used to calculate how much of their expenses are deductible. This is the indirect method. Direct expenses incurred by the business are deducted in full.