Home Office Deduction - What's Allowable?

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Hi. I'm Tamara, and I work for the IRS.

More and more small-business owners are running businesses out of their homes.

But just what is and is not tax-deductible?

Generally, you may not deduct expenses related to the rent, purchase, maintenance, and repair of a personal residence.

However, if you use a portion of your home for business, you may be able to take a home-office deduction if you meet certain requirements.

Deductible expenses might include the business portion of real estate taxes, mortgage interest, rent, utility, insurance, depreciation, painting, and repairs.

Those who work out of their homes are entitled to deduct ordinary and necessary expenses related to the business.

This includes costs related to regular and exclusive business use that can be clearly distinguished from personal use or reasonably allocated between the two.

Exclusive use means a specific area of your home is used only for trade or business.

Regular use means it's used regularly, not just occasionally or incidentally.

And that's important because both conditions must apply.

Also, if you work as someone's employee, you can claim this deduction only if the regular and exclusive business use of the home is for your employer's convenience, not yours, and your employer does not rent the business portion of your home.

Here are just a few criteria that you would need to meet when considering a business deduction for using part of your home.

You use part of your home exclusively and regularly as your principal place of business...

you meet or deal with patients, clients, or customers there...

you have a separate, free-standing structure not attached to the home, such as a studio, garage, or barn that you use exclusively and regularly for your trade or business...

you have a separate, identifiable part of your home that you use regularly for storage, such as inventory or product samples, as rental property, or as a home daycare facility.

Personal, family, and living expenses are not deductible under any circumstances.

A common error is to deduct expenses for a portion of the home that is not regularly used or exclusively used for business.

It's important to understand the rules, compute the deductions correctly, and keep accurate records to substantiate those deductions.

For worksheets and additional information on computing the allowable home-office deduction, check out Publication 587, Business Use of Your Home.

It's on IRS.gov.