If you use part of your home for your own business or trade, you may be eligible for a home office deduction! Here are some of the frequently asked questions to help you understand the basics of this deduction.
Who qualifies for a home office deduction?
Self-employed individuals, such as contractors and those working in the gig economy, may qualify for a home office deduction. Generally, if you're an employee of a company and use your home for work, you do not qualify for the deduction.
What are the requirements?
Here are the requirements to qualify for a home office deduction:
Exclusive Use: You must use a specific area of your home only for your business or trade. This can be a room or another separately identifiable space and does not need to be marked off by a permanent partition. If you use the area in question for both business and personal use, then you do not meet the requirements for exclusive use. Exceptions apply to the storage of inventory and daycare facilities.
Regular Use: You must use a specific area of your home for your business on a regular basis.
Principal Place of Business: If you have more than one business location, you must consider the relative importance of activities performed and the amount of time spent at each location. If you use a specific area in your home exclusively and regularly for administrative and management tasks and have no other fixed location where you perform a substantial amount of these tasks, then your home can qualify as the principal place of business.
If you meet all of the above requirements, then you may be able to deduct some of your home expenses.
What qualifies as a "home"?
The deduction is available to both homeowners and renters. A home can include a:
The structure you live in: a house, apartment, condominium, mobile home, boat, etc.
A separate structure on your property: an unattached garage, studio, barn, greenhouse, etc.
Properties used exclusively as a hotel, motel, inn, or other similar businesses do not qualify.
What expenses can be deducted?
Eligible deductions may include:
Real estate taxes
Mortgage interest
Insurance
Rent
Utilities
Maintenance and Repairs
If you have questions about a specific expense, please contact your bookkeeper or accountant to see if it's eligible for a deduction.
How much is the deduction?
There are two options for figuring the amount of the deduction:
Simplified method: The deduction rate for this method is $5 per square foot of your home used for business, up to the maximum deduction rate of $1,500 or 300 square feet.
Regular method: Determine the percentage of your home used for business and that's the percentage you can deduct from each of your qualifying expenses.
How do I claim a home office deduction?
If you file an individual tax return for your business, you can claim the home office deduction on your Schedule C, Profit or Loss from a Business. You can also use Form 8829, Expense for Business Use of Your Home to figure the allowable expenses. If you're a partner, then you may be able to deduct unreimbursed expenses on a Schedule E, Schedule SE, or Schedule K-1, depending on your circumstance.
Don't Forget to Record and Keep Track of Your Expenses!
If you qualify for the home office deduction and plan on claiming it on your tax return, it's important that you keep accurate and complete documentation of your expenses in case of an audit.
Need help keeping books for your business? Give us a call at (360) 756-5020 and one of our bookkeepers would be happy to speak with you.
Disclaimer: This post is meant for informational purposes only and should not be taken as legal, business, or tax advice. Please consult with your accountant or bookkeeper for more information based on your specific situation. For more information, please read through the following resources: