If you use part of your home for your business, you may be able to deduct expenses for the business use of your home. The home office tax deduction is available for homeowners and renters, and applies to all types of homes.
The best part is that the IRS has now simplified the method for determining the home office tax deduction.
But do you qualify for the simplified deduction?
Requirements for Business Owners
If you own your business, there are two basic requirements for your home office to qualify as a tax deduction:
- Regular and exclusive. You must regularly use part of your home exclusively for conducting business. For example, if there’s an extra room in your house and you use it solely to run your business, you can potentially claim a home office deduction for that extra room — but it must also be your principal place of business.
- Principal place of business. Your home office does not need to be your only place of business. But your use of your home office must be “substantial and regular.” You can get the deduction for separate free-standing structures (such as a studio, garage, or barn) as well as for a space in your home you use regularly for a business purpose (for example, for consultations), even if you also conduct business in another location.
Requirements for Employees
If you’re an employee and use part of your home for business, you may qualify for a home office tax deduction if you meet the following requirements:
- You meet the same requirements stated above;
- Your business use must be for the convenience of your employer; and
- You are not receiving rent from your employer.
What Is the ‘Simplified’ Option?
Small business owners may be tempted to use the IRS’s new simplified method for calculating the home office deduction. Here’s how it differs from the regular method:
- You can claim a standard deduction of $5/square foot, with a 300-square-foot maximum (instead of determining the actual percentage of your home used for business);
- You can claim your home-related deductions in full; and
- There is no home depreciation deduction, nor can depreciation be captured for the years the simplified method is used.
For additional guidance on the home office tax deduction, you may want to consult an experienced tax attorney in your area.