Small business owners able to deduct home office expenses from their taxes

If you are a small business owner who exclusively and regularly uses part of your home or a separate structure on your property as your primary place of business, then you could be eligible to claim the home office deduction.

To help you to decide if you are eligible, the IRS has released a handy checklist:

• If you are an employee then you are not eligible to claim the home office deduction
   
• The home office deduction, which is calculated on Form 8829, is available to homeowners and renters alike
   
• The expenses you could deduct include:
   
  • Mortgage interest
  • Insurance
  • Utilities
  • Repairs
  • Maintenance
  • Depreciation
  • Rent
     
• You must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited
   
• The term "home" for purposes of this deduction:
   
  • Includes a house, apartment, condominium, mobile home, boat or similar property
  • Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse
  • Doesn't include any part of the taxpayer's property used exclusively as a hotel, motel, inn or similar business
     
• Generally, there are two basic requirements for your home to qualify as a deduction:
   
  • There generally must be exclusive use of a portion of the home for conducting business on a regular basis. For example, if you use an extra room to run your business, you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business
     
  • The home must generally be your principal place of business. You can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction
     
• Expenses that relate to a separate structure not attached to the home may qualify for a home office deduction, but will qualify only if the structure is used exclusively and regularly for business
   
• If you qualify, you may choose one of two methods to calculate your home office expense deduction:
   
  • The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
     
• When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. If you use a whole room or part of a room for conducting your business, you need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

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Date published Jan 25, 2022 | Last updated Jul 8, 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.