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HOW TO CALCULATE YOUR HOME OFFICE TAX DEDUCTION

HOW TO CALCULATE YOUR HOME OFFICE TAX DEDUCTION

HOW TO CALCULATE YOUR HOME OFFICE TAX DEDUCTION

If you have a business and work out of your home, the IRS allows you to deduct certain expenses on your return. This can be somewhat complicated, depending on the nature of your home office use, the size of the home office and the specifics of what you actually do in the office. Here are a few key things to keep in mind:

  • The IRS requires you to use your office (or a part of your home) for “regular and exclusive use.” The part of the house should be your principal place of business, a place where you meet customers, or a separate structure dedicated to the business, like a garage or studio.
  • The home office is generally a room, group of rooms or attachment to your house, but it must be dedicated for exclusive office use.
  • The office must be a space that is regularly used for work. For example, if you spend a few hours each day of the work week working in your home office, it will probably qualify for your deduction.
  • If you have a dedicated telephone line only used in your home office for your business, you can deduct that expense.
  • You can figure in repairs or maintenance costs for your home office as part of your deduction. Determine the percent of square footage of your house that is used for the home office. For example, if 15 percent of your home’s total square footage is used for a home office, you can then deduct 15 percent of utility costs, mortgage interest and property tax.
     
  • To calculate your deduction, you can use two methods:
     
    • The simplified option allows you to multiply the allowable square footage of your office by $5 up to a maximum of 300 square feet.
       
    • The regular method allows you to specifically calculate the actual expenses like rent, mortgage interest, taxes, repairs, depreciation, and utilities you pay for the portion of your home used for the business. If you use only part of a space for your business, you’ll need to figure out the percentage devoted to business activities.

This information is not intended to be a substitute for specific individualized tax advice. Consult your tax advisor for more specifics about the home office deduction, particularly if you are claiming this deduction for the first time.

Adapted in part from IRS.gov

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