Maximize Your Tax Savings with the Home Office Deduction
Home Office Deduction
Taxpayers generally cannot deduct personal home expenses; however, they may be eligible to reduce expenses related to the business use of their home, such as rent, property taxes, insurance, repairs, or mortgage interest. In this article, you will learn whether you qualify for a home office deduction and which method would be easiest for you come tax time. Before we review the requirements for the home office deduction, it’s important to note that, in all cases, the area must be used exclusively and regularly for business.
- Is this area used to conduct business only and not for personal purposes?
- Is this the principal place of business?
- Is this area used to meet with clients, patients, or customers to conduct business activities?
- Is the area a separate structure that’s not attached to your home, but used for trade or business?
- Is it used as a rental?
- Is it used as a daycare facility?
- Is this area used to store inventory or product samples for the business?
After reviewing the qualifying requirements and determining whether you meet them, you will need to choose a method to calculate the amount you can deduct.
Regular Method
The regular method for claiming the home office deduction involves dividing your home expenses between personal and business use. This requires taxpayers to determine all expenses and maintain proper records. You can fully deduct expenses that are directly related to the business, but general home expenses must be allocated based on the percentage of your home used for business.
- Home-related expenses must be allocated between Schedule A and the appropriate business schedule, such as Schedule C or Schedule F.
- A depreciation deduction can be taken for the portion of the home used for business purposes.
- A daycare provider can calculate their business percentage based on the amount of time the facility is used for business.
- Self-employed taxpayers reporting their profit or loss on Schedule C must use Form 8829 to calculate their home office deduction.
Simplified Method
The simplified method allows taxpayers to deduct a maximum amount of $1,500 : $5 per square foot (limited to 300 square feet) of the area used for business to determine their home office deduction.
- All home-related deductions are claimed on Schedule A.
- No depreciation deduction is allowed when using the simplified method.
- Taxpayers who qualify for more than one business use of home deduction in the same year may only use the simplified method for one of the homes.
- Disallowed amounts from prior years cannot be deducted.
Conclusion
When choosing a method for the home office deduction, keep in mind that you’re not locked into either method once claiming it for that tax year. You have the option to switch methods the following tax year. Both methods will help reduce your taxable income, however, it’s important to maintain accurate records and understand the proper requirements to qualify for the deduction.
Consulting with a tax professional is recommended to help maximize your benefits while ensuring compliance with tax laws. If you're already a client, please reach out to your current contact as we will be happy to discuss this topic further with you. If you're not already a client, please call 724.934.4880 and we'll be happy to discuss your situation further to determine how we can best help.
