If you maintain an office in your home, you may qualify to deduct certain expenses associated with the space, such as:
- Utilities
- Mortgage Interest
- Rent
- Real Estate Taxes
- Repairs and Maintenance
- Depreciation
- Insurance
The amount of the deduction depends on the percentage of your home used as an office. For example, if you have a 200 square foot office in a 1,000 square foot apartment, your business percentage is 20%.
In order to qualify, your home office space must be used regularly and exclusively. What does that mean?
Regular – Whether you use your space regularly depends on personal circumstances. If you occasionally bring work home and complete it at the kitchen table, this is not regular use of a space in your home as an office. However, if you usually prepare your invoices on the computer in the guest room, that is regular.
Exclusive – While your office does not need to be a separate room (i.e., an office with a door), it must be a space that is ONLY used for business. For instance, if you sometimes work while sitting on the couch, this space is not exclusively used for business as you likely sit on that couch when you aren’t working. If you have a desk in the corner of the living room that’s only used when you are working, that may qualify as exclusive use even though the rest of the room is used for other purposes.
These tests rely on your own personal situation, so be sure to do proper evaluation before claiming any deductions.
To qualify for a home office deduction, your home office must be your principal place of business. This does not mean it is your only place of business (helpful for those of us who sometimes take our laptops to coffee shops!). Your principal place of business is defined as the space where you perform administrative tasks like ordering supplies, maintaining books and records, and setting up meetings and appointments.
There are also deductions available if you use your home to store inventory or product samples, so talk to your tax adviser if these situations apply.
