What are the rules regarding Home Office Deduction?
What are the "Home Office Deduction" Rules?
According to the IRS, "a taxpayer who uses a portion of their home for business purposes, may be entitled to take a home office deduction irrespective of whether or not they are self-employed or an employee."
What are the Expenses that qualify for a Home Office Deduction?
The expenses that may be deducted for business use of the home may include the business portion of real estate taxes, mortgage interest, utilities, home insurance, home depreciation, any painting and repairs. For a rented property, the same expenses would also qualify, other than Mortgage, which would be substituted by Rent, Utilities and Insurance.
As with all deductions, there are some strict rules that must be adhered to by the taxpayer claiming a Home Office Deduction. The IRS will only permit this deduction for the business use of a part of your home only if the taxpayer meets the following conditions:
1. The Taxpayer uses that part of your home regularly and exclusively as a principal place of business for any trade or business.
2. The Taxpayer uses that part of the home regularly and exclusively to meet or deal with his or her patients, clients or customers in the normal course of their trade or business.
Generally, the amount that one can deduct depends on the percentage of your home that you used for business. This percentage is applied to the qualified home office deduction expenses.
What Form do I have to use to report these Home Office Deduction?
Taxpayers must use Form 8829 to report their Home Office Deduction. The amounts of business expenses would be reported on this form and the % of home being used would be applied to these expenses. The resulting amount would then be reported as a deduction on line 30 of Schedule C, Form 1040."
A Word of Caution!
Claiming a Home Office Deduction generally will spark an interest to audit the tax return. So, when claiming this deduction, please refer to the rules above to ensure that you comply with these 100%!