Tax Tip of the Week: Consider the Home Office Deduction

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A lot more of us are working from home these days, but does that mean you can (or should) take advantage of the home office deduction? Maybe. Read on to find out.

The Threshold to Claim the Home Office Deduction is High

You in fact may do a lot of business in your home office. I spend many hours a day in mine. But to qualify for the home office deduction, the IRS has set the bar high. Taxpayers must use part of the home for one of the following two reasons:

  1. Exclusively and regularly as either: 
     – your principal place of business, (unless it is a separate structure not attached to your home – then it doesn’t have to be your principal place, but still used as part of it) OR
    – as a place to meet or deal with patients, clients or customers in the normal course of your business, OR
  2. It is used n a regular basis for certain storage use, such as for or product samples, as rental property, or as a home daycare facility.

The IRS has a pretty clear cut definition of exclusive. It means ONLY, as in you ONLY use that room for business. If the room is used for any personal use, the deduction is not valid. It doesn’t have to be partitioned off, so it doesn’t necessarily have to be a separate room. It could be just a portion. In my case I’d have a pretty good argument that my desk area is used exclusively for my business.

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You can generally deduct expenses prorated at same percentage that the office space is to the home. In my case it’s only about 1.5%, so to me it’s not worth holding onto the documentation and filing the extra form for a few hundred dollars of deduction. 

Taking the home office deduction may be worth it if you don’t mind keeping a lot of documentation. You may be able to deduct insurance, rent, insurance, repairs, utilities, security, and depreciation. But you’ll need to prove it. It comes down to weighing whether or not it’s worth it in your particular case.

And make sure you meet the exclusivity test before you even think about it! See your tax professional or read IRS Publication 587 to find our if you qualify.

Image Credit: randyr.net, Flickr