Home Sweet Office

May 10, 2017

Do you have a room in your home that you use just for your business? If so, you could claim a deduction on your tax return for your home office.

Before we get ahead of ourselves, we should acknowledge that you will have to meet certain requirements. However, most are able to deduct a percentage of the costs of running the home such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, some casualty losses, repairs, and improvements as related to the portion of your home used for business.

A “home”, as defined by the IRS, can be a condo, house, apartment, mobile home or boat (with provided amenities). The home can be rented or owned,  however, to qualify for the home office deduction you must meet two tax law requirements:

1. You must regularly use part of your home exclusively for a trade or business.
2. You must be able to show that you use your home as your principal place of business meaning you meet patients, clients, or customers at your home or you use a separate structure on your property exclusively for business purposes.

Regular use: 

The IRS doesn’t offer a clear definition of regular use – only that you must use a part of your home for business on a continuing basis, not just for occasional or incidental business. You should qualify by working a couple days a week for a few hours.

Exclusive use: 

Exclusive means that you must use a portion of your home only for your business. If you use a portion of your home for work but also for personal use then you will not meet that requirement. However, you are able to use a portion of a larger room as long as your personal activities do not enter that area.  There are two exceptions to the exclusive use rule. If you run a qualified daycare out of your home or store inventory or product samples then you do not have to meet the exclusive use test.

If you are storing inventory or samples in your home, you can still qualify for the home business expense even if you are not using that space exclusive for your business.The inventory will need to be stored in a certain location such as the garage, a closet, or bedroom.  However, you will not get the deduction if you have an office or business location outside of your home.

Remember you can only claim this deduction if you are running a business. If the IRS believes it’s a hobby the deduction will not be honored.

– Brittany Jennings, Staff Accountant

Categories: Audit & Accounting, Other Resources, Tax Compliance, Tax Planning