If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses that can be deducted for the business use of a home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs.
This deduction can be claimed for the business use of a part of a home only if it is used regularly and exclusively:
- As your principal place of business for any trade or business; or
- As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business.
Generally, the amount that can be deducted depends on the percentage of the home that is used for business. The deduction will be limited if the gross income from the business is less than the total business expenses.
If a separate structure not attached to your home is used for an exclusive and regular part of your business, expenses related to it can be deducted.
If you are self-employed, the home office deduction is included on the business schedule. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
If you are an employee, you have additional requirements to meet. The regular and exclusive business use must be for the convenience of your employer. In addition, the home office deduction is a miscellaneous deduction subject to the 2% of AGI limitation; if you are taxed by the alternative minimum tax (AMT), you may not benefit from the deduction since miscellaneous itemized deductions are not deductible for AMT purposes.
If you have questions related to using a portion of your home for business purposes, its tax benefits, and the impact of the sale of your home in the future, please give this office a call.