Can I take a tax deduction for a home office on my tax return?

You've got two ways to show the IRS that your home office qualifies for tax deductions on your tax return. You must show on your tax return that you use your home office exclusively and regularly as:

	your "principal place of business"; or
	the place where you meet with patients, clients, or customers in the normal course of business.

Home Office Tax Deduction - Principal Place of Business

In order for your home office to qualify as your principal place of business you must spend most of your working hours in your home office and most of your taxable business income must come from activities in your home office.

That's been harder to prove since the Supreme Court tightened this tax definition in 1993. To meet this tax test now, you must be able to show the IRS that your home office is your most important place of doing business or that you spend more time working in your home office than anywhere else. So make sure you have tax records of your activities at your home office and a log of the time you spent working at your home office as opposed to your employer's office.

If your home office was in a structure not attached to your home, such as a stand-alone garage, chances are you can take the tax deduction on your tax return with ease if you satisfy the exclusive use tax test and regular basis tax test discussed earlier. A detached structure does not have to qualify as a principal place of business or a place for meeting patients, clients, or customers.

Home Office Tax Deduction - What's tax deductible?

You can deduct on your tax return real estate tax, mortgage interest, utilities, operating expenses, and depreciation. You cannot deduct on your tax return the total that you incur for all of the above expenses. You must allocate the expenses to business and personal use on your tax return. Use one of the two (2) following methods:

if all of the rooms are not equal size divide the number of square feet used for home office space by the number of total square feet of your home. Apply the resulting percentage to your tax deductible expenses on your tax return. (i.e. 100 sq. ft. used for a home office divided by 1000 sq. ft. total size of home equals .10 or 10%. Apply 10% to the total of each tax deductible expense on your tax return.);

if all the rooms are the same size you may base your home office tax deduction on a comparison of the rooms used for home office space versus the total number of rooms. (i.e. Your home has 10 rooms and 2 rooms are used for your home office. You can deduct 20% of your total expenses on your tax return.)

Home Office Tax Deduction - Tax Deduction Limits

Your tax deductions on your tax return for utilities, maintenance, and insurance costs, depreciation, or rent, may not exceed the net income derived from your home office after mortgage interest, real estate tax, and casualty losses are subtracted. If you have no income for the tax year no tax deduction is allowed on your tax return. You may carry forward to future tax years any tax deductible expenses disallowed in the current tax year.

Home Office Tax Deduction - Sideline Businesses

If you have a principal occupation and also have a sideline business the expenses of the sideline business are tax deductible on your tax return if the above tax tests are met.

Use Form 8829 to figure your tax deductions on your tax return.

Related tax information about home office tax deductions

Tax Directory Topics:
Itemized Tax Deductions

IRS publications about home office tax deductions:
See IRS Publication 587,

Business Use of Your Home. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

Customer Support

Still have IRS or tax questions?
To view the Alphabetical Master Index of all tax and IRS topics click here.

Ask Julian Block your IRS and tax questions!

If you can't find the answer to your IRS or tax question in our web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine.

To call Julian for a tax consultation click here.

Prepare your IRS tax return and State tax return online - If you'd like to e-file and/or print your IRS tax return or State tax return online click here.