How Can I Deduct Costs Related to My Home for Business?

With the rising price of transportation costs, more and more people are choosing to work from home and many others are starting their own home-based businesses.  Often, these at-home workers have a dedicated office space in their homes and are eligible to take the Home Office Deduction on their taxes.  This deduction, however, can be a bit tricky so you’ll want to make sure you qualify if you want to claim it!

The absolute most important aspect of your home office is that it must be used solely for business purposes, such as meeting with clients or patients.  If your home office also functions as a guest bedroom, for example, you do not qualify.  If you take the deduction and are audited, you may have to allow an auditor to visit the office.  More information about taking the deduction can be found in IRS Publication 587.

If you have determined that you qualify, you’ll want to know how much you can deduct.  First of all, you’ll need to know the total square footage of your home as well as the square footage of your home office.  If your home is 2,000 square feet and your office space (including closets and other storage areas) is 100 square feet, you are allowed to deduct 20% of certain home-related costs.  These costs include (but are not limited to):

• Mortgage payments/rent and insurance
• Property taxes
• Necessary utilities (such as water, gas, electricity)
• Telephone bill (in this example, 20% if the line is also used as a house line, 100% if it is exclusively a business line)
• General repairs
  • In this example, if you have to replace the gas furnace, you can deduct 20% of the cost because it affects the entire house.  If, on the other hand, you repair a wall in the office, that repair is 100% deductible because it affects only the home office.  These two expenses will need to be listed in separate sections of Form 8829, the form used to claim this deduction.
• The contents of your office, including furniture and electronics.

There are always exceptions and special circumstances so be sure to talk to a tax professional to make sure you are filing everything correctly and getting the most out of your home office deduction!