Business Use of Your Home | FAQ
Self-employed individuals and small business owners working from home can save money by taking a deduction for business use of the home. Here’s what you should know:
Who can take deductions for business use of home?
If you’re self-employed or own a small business, you may be able to deduct certain home expenses if one of the following applies:
You exclusively and regularly use part of your home as your principal place of business, meaning you perform your most important business activities or you spend most of your business activity time in your home.
You exclusively and regularly use part of your home to meet with clients, customers, or patients.
You exclusively and regularly use a separate structure not attached to your home in connection with your business.
You store inventory or product samples in a part of your home on a regular basis.
You use part of your home or property as a rental.
You use part of your home as a daycare facility.
As you may have noticed, the terms “exclusively” and “regularly” are used in many of the requirements. Exclusively refers to using a part of your home for business purposes only. For example, if you use an office in your home for personal and business purposes, you can’t apply a home office deduction.
Note: This deduction only applies to self-employed individuals. If you’re an employee of a company and use your home for work (e.g., you’re a remote worker), you do not qualify for this deduction.
What qualifies as a “home”?
This deduction is available to both homeowners and renters. A “home” may include a place you live in such as a house, apartment, mobile home, boat, etc. The portion of your home you use for business can be a room or a separately identifiable space. It can also include a separate structure on your property such as an unattached garage, studio, barn, greenhouse, etc.
If any part of your property is used exclusively as a hotel, motel, inn, or other similar business, you cannot claim the deduction.
What expenses can be deducted?
Expenses that can be deducted include the business portion of:
Real estate taxes
Mortgage interest
Rent
Casualty losses
Utilities
Insurance
Depreciation
Maintenance
Repairs
If you plan on taking this deduction, make sure to keep records of your expenses. It will help your tax preparer file an accurate return and will help you in case of an audit.
How do you figure the amount of the deduction?
The IRS offers two options for figuring out the amount you can deduct for business use of home:
Regular Method
To use the regular method, you need to determine your total square footage and the percentage of floor space that you use for business. If you have expenses related directly to your business, you can deduct these expenses in full. If you have indirect expenses, you can deduct the percentage used for business from each of your qualifying expenses.
Simplified Option
The simplified option, which is what the IRS considers the “optional safe harbor method” allows you to deduct $5 per square foot that you use for business (up to a maximum of $1,500 or 300 square feet).
How to claim the business use of home deduction?
For the regular method, you need to file Form 8829, Expenses for Business Use of Your Home, to figure the deduction. If you use the simplified option, then you will claim the deduction directly on your Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), to claim the deduction.
Note: You cannot deduct in excess of the gross income limitation.
Get the credits and deductions you deserve
Claiming credits and deductions can be tricky. Luckily, our tax preparers have years of experience and stay up to date with tax laws to make sure our clients stay in compliance. We can help you get the biggest deduction. Give us a call at (360) 922-0235 to talk with one of our tax preparers.
Disclaimer: This material is prepared for informational purposes only, and is not tax advice. Please speak with a tax professional or view the resources below to see how this information may apply to you.
