February 7, 2013 – San Francisco Real Estate Professionals
Recently we posted about finding your fine new home office. And working from home is becoming more of a reality for many workers / small business owners. But now that TAXES are on everyone’s mind right now, just what can be used as a deduction when it comes to your home office?
First you have to pass the IRS litmus test.
According to IRS guidelines, “your home office must be your principal place of business, or the place you see clients in the normal course of business.” This also includes storage for your home office (ie file boxes). Not ALL your business has to be done out of your home in order to qualify for a tax deduction, but if you figure up billing and return phone calls from your home office, it may qualify.
If you are an employee who works from home instead of the office, if you don’t charge your employer rent, it may qualify for a deduction. The employee home based office must be convenient for the employer rather than the employee – like the employee can be available to work at night and off hours.
Now let’s get the calculator and tape measurer out – we’re now going to figure out what percentage of your home is your home office. That ratio will be used to figure how much your utilities, mortgage payment, and other things is used for your office.
According to Houselogic, ‘To calculate what percentage of your house the home office occupies, divide your home office’s square footage by the total square footage of your home. If your home is 3,000 square feet and your office is 150 square feet, for example, you’d use 5% to calculate your deductions. Not sure how big your house is? Check the documents you received when you bought your home—there’s probably a detailed rendering—or measure the outside of your home and multiply length times width.”
So, what CAN you deduct?
You can deduct the percentage of your home office to:
- Mortgage interest
- Real estate taxes
- Utilities (heating, cooling, lights)
- Home repairs and maintenance (painting, cleaning service)
- Home owners insurance premiums
Repairs and / or improvements may also be deductible. Keep your bills and cancelled checks.
Depreciation can also be applied to your home office.
Don’t forget that you will also need to get your other business and office expenses are also deductible, too!