NASE Blogs

Home Office Deduction

Tuesday, April 20, 2010
Q: I started a new business several months ago and I operate out of my home. I have heard I can deduct my expenses for the home office. Is this true? And how do I do that?

A: The amount of the deduction will depend on the space that you have allocated to the home office. The key is that you use a portion of your home “regularly” and “exclusively” for business, then you would qualify for the home office deduction. This is true even if you rent your house or apartment. The exclusive part is usually the more difficult of the two for small business owners. This means that the space can be used only for the business and have no other personal usage. For example, if the room that you use for your office has a TV in it that the kids use to play video games, then the space would not qualify for the home office deduction. If the space qualifies, then all of the costs associated with maintaining that portion of your home would be deductible, including your rent and utilities.

The amount that would be deductible would be based on the business percentage of the use of the home which is determined by taking the percentage of the space used for business compared to the overall space of the home. Therefore, if you have an office used regularly and exclusively for business that was 200 square feet and your total home was 2000 square feet, then the percentage would be 10.0 percent, 200 divided by 2000. Therefore, 10% of the costs of maintaining the home would be deductible as a business expense.

The deductible expenses are reported on Form 8829, which is attached to your tax return. The IRS has a very good publication to help you with this information called Publication 587, Business Use of Your Home. You can download the publication for free from the IRS website at www.irs.gov. You can also download form 8829 along with instructions.

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