Requirements to Claim the Home Office Deduction
Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:
- Regular and exclusive use.
- Principal place of your business.
Regular and Exclusive Use.
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room; however, it does not have to be a separate room to qualify for the deduction. A desk in the corner of a room qualifies as long as it is used regularly and exclusively.
Principal Place of Your Business.
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
For example,you can deduct your expenses for the part of your home used exclusively and regularly for business:
- if you have in-person meetings with patients, clients, or customers in your home
- in the normal course of your business
- even though you also carry on business at another location,
You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Taxpayers using the regular method must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Beware however that if you use this method you may not qualify for the full home gain exclusion. If you sell your home for a gain, you may owe tax on the amount of the home value that was or could have been depreciated.
When using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. If you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
You also can use the simplified option for computing the home office deduction . The simplified method allows for:
- Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
- Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
- No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.
As of 2018, un-reimbursed employee business expenses are no longer allowed as itemized deduction, so if you are a W2 employee and work from home, you probably will no longer benefit from the home office deduction.
There are special rules if you store inventory at your home or if you use your home as a child care facility. For more details you can read IRS Publication 587