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How to take a home office tax deduction

Posted on August 16, 2019

What does the IRS recognize as legit when it comes to qualifying for a home office deduction?

Here are the guidelines from the CPAs at Teipen Selanders Poynter & Ayres. You may qualify for a home office deduction if:

You use a portion of your home exclusively, and on a regular basis, for any of the following:

  • As your main place of business.
  • As a place of business where you meet patients, clients or customers on a regular basis.
  • If it is a separate structure that is not attached to your home.
  • It is the sole, fixed business location where you store business inventory or samples.
  • Under certain circumstances, it can be the structure where you provide day care services.

Deductible expenses for business use of your home include:

  • Real estate taxes
  • Mortgage interest
  • Rent
  • Casualty losses
  • Utilities
  • Insurance
  • Depreciation
  • Repairs and Maintenance

Some expenses are limited to the net income of the business, and are known as allocable expenses. They include things such as utilities, insurance, and depreciation.

Note: While allocable expenses cannot create a business loss, they can be carried forward into the next year. If you carry them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming a home office deduction:

Regular method – which requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829 (or ask your CPA for help.)

Simplified method – 
This method reduces the paperwork and recordkeeping for your small business by using a set rate of $5 a square foot for business use of the home area. The maximum deduction allowed is 300 square feet.

Your CPA can help you abide by the particulars of current IRS rules for business owners when claiming your business deductions. Ask us for guidance.