Can You Take a Home Office Deduction?

If you plan to run your small business out of your home, you may be tempted to “write-off” many of your household expenses.  But how do you know what is deductible or not?  Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible items.

However, if part of the home is used for business purposes, a taxpayer may be able to take a home office deduction.  Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.

In order to claim a business deduction, you must use part of your home:

• Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or

• On a regular basis for certain storage use, such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, if the taxpayer works as an employee, this deduction can be claimed only if the regular and exclusive business use of the home is for the convenience of his or her employer and the portion of the home is not rented by the employer.

“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business.  Incidental or occasional business use is not considered regular use.

Non-business, profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.

Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns.  The family also uses the den for recreation.  The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.
 
The foregoing is only a brief summary of the home office rules.  If you are currently running a business out of your home or anticipate doing so, please call our office for further details.