Requirements to Claim the Home Office Deduction
There are two basic requirements for your home to qualify for a deduction:
1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may still qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:
Computing The Home Office Deduction
There are Two methods for determining the amount of the home office deduction. Under the regular method (the only method available for tax years 2012 and prior) taxpayers (you) must determine the actual expenses of the home office. These expenses may include rent, mortgage interest, insurance, utilities, repairs, and depreciation. The amount of these expenses that are deductible as home office expenses are generally based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. If you have a 100 square foot office in a 1,000 square foot house you may be able to claim 10% of these expenses a business deduction.
New for this year (2013 tax returns) the IRS has authorized a simplified method for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2026). This new simplified option can significantly reduce the record keeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. For 2013 this rate is $5.00 per square foot with a maximum of 300 square feet. Additionally, under the simplified method mortgage interest and property taxes do not need to be allocated between itemized deductions and the home office deduction. These otherwise allowable deductions are deductible in full on schedule A. Depreciation is not claimed under this method. This can be a plus as there are no issues of depreciation recapture when you sell your home. Under the regular method you may be required to include prior depreciation deductions in your income for the year you sell your home.
The home office deduction is subject to certain limitations and complexities which are beyond the scope of this discussion.
There are two basic requirements for your home to qualify for a deduction:
1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may still qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:
- Your business use must be for the convenience of your employer, and
- You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
Computing The Home Office Deduction
There are Two methods for determining the amount of the home office deduction. Under the regular method (the only method available for tax years 2012 and prior) taxpayers (you) must determine the actual expenses of the home office. These expenses may include rent, mortgage interest, insurance, utilities, repairs, and depreciation. The amount of these expenses that are deductible as home office expenses are generally based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. If you have a 100 square foot office in a 1,000 square foot house you may be able to claim 10% of these expenses a business deduction.
New for this year (2013 tax returns) the IRS has authorized a simplified method for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2026). This new simplified option can significantly reduce the record keeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. For 2013 this rate is $5.00 per square foot with a maximum of 300 square feet. Additionally, under the simplified method mortgage interest and property taxes do not need to be allocated between itemized deductions and the home office deduction. These otherwise allowable deductions are deductible in full on schedule A. Depreciation is not claimed under this method. This can be a plus as there are no issues of depreciation recapture when you sell your home. Under the regular method you may be required to include prior depreciation deductions in your income for the year you sell your home.
The home office deduction is subject to certain limitations and complexities which are beyond the scope of this discussion.
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