How to Deduct Your Home Office Expenses

Whether you work for yourself or for someone else, if you use some specific part of your home for business, you may be entitled to deduct your associated office costs. First and foremost your home office area must be used repeatedly and solely for the needs of your business-in other words, you can't set up a computer in the family room, type an invoice on it occasionally and expect to use it as a home office deduction. The part of your home which you designate as your home office must be the primary place where you conduct your business, meaning you meet and deal with clients there. If you are using an independent, unattached structure such as a stand-alone garage or a guesthouse, for your business, it may also be eligible for the home office deduction in the eyes of the IRS.

Remember that the IRS stipulates that your home business location must be the sole place you conduct your business responsibilities, work and meetings. If you are a worker employed by someone else, but also have your own home business on the side, you are required to meet the same standards as any self-employed taxpayer. One scenario which will probably not pass the eagle eye of the IRS would be if you are employed full time by a regular employer who, for whatever reason does not provide you a regular office at its primary location. Therefore, having a home office-and deducting your office expenses--simply to make life easier for your employer probably won't qualify you for home office deductions.


If you have determined that you've met all the IRS requirements for claiming a reasonable deduction for the expenses of your home office, you may be able to deduct a part of your real estate taxes, rent or mortgage payment, insurance and utilities, and such repairs such as painting or installing new windows, etc. The total amount you will be able to deduct for your home office will depend on the portion you claim you use the office for which is strictly for your business. Of course this deduction will be lessened if the income from your business is not as much as your business expenses.

One home office issue that was a tax problem previously was when you sold your residence, as you then owed tax on that percentage of the home you had claimed as a home office expense. The IRS has said that taxpayers no longer are required to do this, however unless your home office is not attached to your home.

When deciding to take the home office deduction, keep in mind that your designated office space must be used on a regular basis in order to qualify, and that not-for-profit activities such as your hobbies do not qualify you to take a home office deduction. The most common way of figuring the portion of your office used exclusively for business is to divide the area of your home used strictly for business by the total square footage of your home, or, alternatively, divide the number of rooms in your home used exclusively for business by the total number of rooms in your home-if all the rooms in your home are approximately the same size.

The IRS cautions taxpayers to make themselves very familiar with all requirements necessary to take the home office tax deduction. Don't forget, this particular type of deduction can flag an unwanted audit, so make sure your record-keeping is impeccable if you plan to take the home office deduction.