If you regularly work from home, you may be able to take advantage of a deduction for the business use of your personal residence. The home office deduction, however, has some specific requirements you should be aware of before claiming it on your tax return.
Do I Qualify?
To qualify, there are some basic requirements must be met.
1. The part of your home used to calculate the home office deduction must be used regularly and exclusively for business. In other words, the space must be used exclusively as your office, and not a kitchen table that you work at from time to time.
However, there are two exceptions. If you run a daycare facility from your home or store inventory or product samples there, you don’t have to meet the exclusive use test.
2. The office must either be your principal place of business or a space where you meet clients or customers. Part of your home may qualify as your principal place of business if you conduct administrative or management activities there, as opposed to running your c
ompany entirely from another location. The office doesn’t even have to be the only one, as long as you don’t conduct substantial administrative or management activities somewhere else. Your principal residence does not have to be a home that you own. As long as you meet the other requirements for a home office deduction, you can still utilize the home office deduction for a rented home or apartment.
How is the Deduction Calculated?
There are two ways to calculate the home office deduction, using either the simplified or traditional methods.
1. Under the simplified method, the deduction is based on the square footage ofthe home office at a standard rate prescribed by the IRS. For 2016, the rate is $5 per square foot, up to a maximum office size of 300 square feet, resulting in a maximum possible deduction of $1,500.
2. The traditional method of calculating the home office deduction begins with adding up the actual expenses you incurred throughout the year. This includes any money you spent
maintaining the office itself, as well as a proportional share of the entire home's expenses,
including but not limited to:
- Mortgage interest
- Homeowners' insurance
- Property taxes