Home Office Deductions

If you work out of your home, you are allowed to deduct expenses for use of your home for your business such as mortgage interest, utilities, home insurance, home repairs, and even depreciation. This deduction is available whether you own your home or rent it.

Eligibility Requirements

To be eligible for this deduction you must meet the following two requirements:

1. Regular and Exclusive Use

You must regularly (not incidentally or occasionally) use this part of your home only for working. If the area is used both for business and personal use, even if it is only 5% personal use, you do not meet the exclusive use requirement. There are different rules for inventory and daycare facilities, see resources at the end.

2. Principal Place of Business

You can conduct business outside of your home, but you work substantially and regularly at your home, or exclusively at home. This rule takes into account the importance and duration of the activities performed. Generally you will want to conduct your administrative and management tasks at home where you are taking the deduction.

If you are an employee and you use your home for business, you may still qualify for this deduction. To read more about how to qualify for this deduction in detail, please read the section “Qualifying for a Deduction” in IRS Publication 587.

Figuring the Deduction

The next piece of the puzzle is figuring out what percentage to claim. First you will want to measure out the areas of your home that are used exclusively for business activities. Figure the total square footage of area used for business and the total square footage of your home. Divide business area by total home to figure your business percentage use.

As a formula this looks like:

Business Square Feet ÷ Total Square Feet = Business Use %

Remember to document this information and keep these records handy in your tax files. I do this by keeping a floor plan that has room measurements on each room and the business area highlighted with the houses total square footage written underneath. It may be a lot of work but if you keep it handy you only have to do it once and you are more likely to satisfy an IRS agent in case of an audit.

Maintain Accurate Records

The last piece of the puzzle is to ensure that you have accurate records, just in case of that audit. To keep accurate records for this deduction, I would suggest the following:

1. Home Records

  • Home purchase
  • Home depreciation on taxes, including for home office use from year to year
  • Yearly mortgage payments and interest records
  • Real estate tax records
  • Casualty loss records

2. Expense Records

  • Home improvement receipts and invoices
  • Home insurance premium records
  • Home maintenance receipts and invoices, including painting
  • HOA fees
  • Monthly utility bills, including security and trash

3. Use of Home

  • Calendar of meetings
  • Emails of schedule for meeting in your home
  • Floor plan with square footage of all areas

Want to learn more?

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IRS Withholding Calculator
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About Arden Lux Lane

My name is Arden Lux Lane and I run The QuickBooks Resource. I am also the owner of Lux Bookkeeping and have been using QuickBooks since 2001 and helping small businesses since 2006.

Lux BookkeepingBizarre as it may sound, I actually enjoy accounting and helping small business owners get the most out of QuickBooks.

Learn more about Arden Lux Lane.