There are two ways to figure the Home Office Deduction, the simplified square footage calculation of the percentage of your home used for business. There are special rules for using your home as a daycare, but I will not discuss these in this blog.
Percentage of Your Home Used for Business Calculation
To figure the business percentage of your Home Office, divide the total area of the office space by the total area of the house, excluding an attached garage. It can be a bit of a pain to acquire all the measurements, but you will only have to do it once.
For example, the office measure 175 square feet and the house measure 1300 square feet. The business percentage would be 13% (175 divided by 1300 equals .13).
The Home Office Deduction would be 13% of all household expenses paid for during the year.
Simplified Square Footage Calculation
If the rooms in your home are all about the same size, the business percentage can be figured by dividing the number of rooms used in your business by the total number of rooms in the house.
For Example, your house has 7 rooms and one room is used exclusively for business, the business percentage would be 14% (1 divided by 7 equals .14).
The Home Office Deduction would be 14th of all household expenses paid for during the year.
There are two types of expenses that you can deduct for the Home Office Deduction, Direct Expenses, and Indirect Expenses.
Direct expenses are expenses for the repair or maintaining the office space. Examples include painting the office, a 2nd telephone line into the office and long-distance business calls.
Indirect Expenses are part of the costs of running the Home Office. this is where the business percentage comes into play.
In our first example, we figured the Home Office took up 13% of the house, so 13% of the following can be deducted:
Homeowners insurance
Utilities
HOA fees
Security
General repairs and maintenance
Mortgage interest
Property taxes
Rent or if you own your home
Depreciation
Keep in mind that if you sell your home for a profit you will have to pay a capital gains tax on the total amount of the depreciation deductions. But despite this, taking the Home Office Deduction will benefit you.
If you qualify to take the Home Office Deduction, it's yours, you might as well take it instead of paying higher taxes.
I hope this blog answered some of your questions about the Home Office Deduction. If you have any questions about the Home Office Deduction or any other tax questions, please feel free to contact me.
Candace Stevens, CEO/President of
Number Cruncher LLC
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