Considering the Home Office Tax Deduction

As this site has grown, I’ve gotten interested in the possibility of taking a home office deduction on my federal taxes. The problem is that I know virtually nothing about doing so. According to the IRS, if you use a portion of your home for business purposes, you may be able to take a home office tax deduction. But here’s the catch… You can claim this deduction only if you use your home office regularly and exclusively as your principal place of business, or as a place to meet or deal with your patients, client, or customers in the normal course of your trade or business. What follows is a (very) quick summary of a few things that I learned while conducting a bit of preliminary research…

What types of things can you deduct?

Expenses that you may be able to deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs.

How much can you deduct?

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.

How do you do it?

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.

If you’re an employee, you have additional requirements to meet… The regular and exclusive business use must be “for the convenience of your employer” (e.g., your employer doesn’t provide office space, so you have to use your home office). Another thing to think about is what effect this deduction might have on your standing with respect to the Alternative Minimum Tax (AMT) — depending on your income level, too many deductions can trigger the AMT.

See also: More on the Home Office Tax Deduction


5 Responses to “Considering the Home Office Tax Deduction”

  1. Nickel

    FMF: I have a followup post that will describe this, but the ‘exclusive and dedicated’ space doesn’t have to refer to a room in its entirety (see also comment #2, above). If you use a portion of a room in the appropriate manner, you can still do the home office deduction. The smaller the area, the less valuable the deduction, but apparentely it can be done.

  2. Anonymous

    The “exclusive” part is the one that disqualifies me. I use part of a room in the basement for my home office, but it’s also our playroom, TV room, and whatever the kids want to make it.

  3. Anonymous

    Another key is “dedicated,” as GrowUpRich pointed out. If you use the space for anything else, it can limit your deduction. Say you have a TV in the corner for the kids’ video games–then you can’t deduct entire space. Even a couch in the office that you nap on some Sunday afternoons might get it disqualified as an office space, since you are using it for something else part of the time.

    Unless it’s truly dedicated space, it’s tough to come up with accurate figures that are worth the effort for the deduction.

  4. Anonymous

    Something you might not have caught in your research is that you can also use partial “home office” deductions against “home office income”.

    For example, you may only have a very small home office deduction based on your situation, but you could deduct real expenses against any income earned from that home office (your blog work).

    Also, it doesn’t need to be an entire room, it could be as simple as having a “dedicated” table or desk where you do the work.

    Feel free to contact me if you’d like some more info. There’s definitely some upside where you could save yourself some $.

  5. Anonymous

    I remember working with a client to measure the size of his home office. We had tape measures and crawled all over the place to figure the percentage. This is one of those times where consulting a tax professional is probably best, especially if you are going to fill out a Schedule C. You can deduct a portion of your broadband/phone service, trips you take in the car to meet clients, meals you take to meet/entertain clients, etc. Heck if you donate to to get a star, that’s probably considered a professional organization membership fee and is deductible.

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