Home Office Deduction: What You Need to Know

Whether self-employed or an employee, you may be able to deduct certain expenses for the part of your home you use to conduct business.

Regardless if you’re the homeowner or renter, the home office deduction is available for office space or other areas used for business. This could be space in the home or in a free-standing structure such as a studio, garage, or barn. According to the IRS, your “home” can be a house, condo, apartment, mobile home, boat, or similar property which provides basic living accommodations.

As you can see, there are many options covered by the deduction, but you must meet two main requirements in order to qualify:

1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.

2. Principal Place of Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home, you may be entitled to the deduction.

So what’s deductible?

Among others, deductible home office expenses include your real estate taxes, mortgage interest, rental payments, utility bills, property insurance, painting or depreciation on your home (if you own your home). These expenses are pro-rated based on the size of your home office in comparison to your home. For example, if your home office makes up 10 percent of the square footage of your home, you can claim 10 percent of these expenses.

There are certain limitations on deductions and potential consequences of claiming some of the deductions, especially with regard to depreciation on your home, should you decide to sell it later. Also, there are some professional opinions that taking the home-office deduction makes you a target for an IRS audit.

Industry opinions are mixed, so you shouldn’t let that stop you from claiming the deduction. The best way to stay out of trouble is to only claim the home office deduction if you qualify, only claim the expenses you are entitled to, and properly document your expenses in case the IRS questions your eligibility or the amount of expenses you attempted to claim. When in doubt, always consult with your tax advisor.

Article contributed by Anca Stradley, MKS&H Tax Accountant

About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.

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